Value of Canadian IPOs Off by Half in First Quarter

The value of initial public offerings in Canada fell to $148 million in the first quarter of 2008, just half of the value of new issues a year previously. It was the lowest quarterly total in more than a decade.

A survey of Canadian equity markets by PricewaterhouseCoopers showed just 20 new issues between January 1 and March 31, 2008. While that was just one less IPO than the first quarter of 2007, the value of new offered was 49.3 percent lower than the $300 million recorded in last year's period.

Only three new issues were introduced on the TSX during the first three months of 2008, for a value of $113 million. A year ago, five IPOs with a combined value of $191 million made it to the TSX. During the first quarter of 2006, 18 new issues worth $1.9 billion appeared on Canada's senior exchange.

Despite the numbers, Andrew Willis of the Globe and Mail points out IPOs aren't "the core" of business for Canadian investment dealers. "The bread and butter of corporate finance departments is follow-on financings for existing, mature Canadian companies," he writes. "Fees from these deals make up 90 per cent of underwriting revenue at most dealers. And the commissions gleaned from IPOs also pale in comparison to what dealers earn for merger and acquisition advice, and restructuring services."

He also suggests the recent strength in IPO figures "were distorted by the income trust boom." Trusts represented more than $3 billion in IPO activity for six straight years "until the federal government took away the punch bowl on Halloween, 2006," he notes."Strip these financings away, and the Canadian IPO market has been marked by small-capitalization debuts for years, with only the occasional large player taking the stage."

Activity on the TSX Venture exchange was up slightly in the first quarter of 2008, when 14 new issues reached the market compared to 13 during the same period of 2007. The value of new offerings on the TSX Venture fell to $31 million from $89 million in 2007's first quarter.

The value of IPOs in the first quarter is the lowest result in more than a decade, says Ross Sinclair, national leader of PwC's IPO and income trust services. "The same confluence of events that weighed down the market in 2007 continues to be a factor in 2008," Sinclair observes.

"It is disappointing but I can't say these results are shocking," he adds. "It will take the return of solid, established companies with premium issues to show the way out of this phase of the IPO market."