In March 2024, the Toronto Stock Exchange (TSX), Canada’s largest platform for initial public offerings (IPOs), marked a whole year without a new corporate listing. This prolonged drought follows a 30-year low in 2023, when Canada’s top exchanges saw just one listing.
Canada’s struggles are part of a wider global slump in public offerings. In 2023, the world’s 15 leading exchanges saw a significant decline or complete pause in listings. However, entering the second quarter of 2024, the IPO markets in the United States and EMEIA are beginning to thaw, amid a series of successful, high-profile new listings.
This raises an interesting question: Is Canada also on the brink of overcoming its IPO drought, or is the market in for further hardship through the second half of 2024?
Jefferies sat down with Erik Charbonneau, Head of Canadian Equity Capital Markets, to discuss the market for Canadian IPOs. Although the pace of recovery may not match that of the United States, Charbonneau is optimistic about a resurgence in new listings and investor enthusiasm.
The following Q&A has been lightly edited for clarity and length.
After a historic drought in IPOs, are there reasons for optimism for 2024 and ‘25?
For all intents and purposes, there has been no IPO activity in Canada for the last couple of years. Now, the conditions are in place for activity to pick up again.
Equity markets are performing well, with North American indices, including the TSX, up this year. Volatility remains muted. And we’re seeing new issue activity in the US. We’re going to see rate cuts this year, and if the economy keeps trending in the right direction, I expect Canadian IPOs to see a resurgence.
The truth is: Canada’s IPO market is open today. It will just take a very high-quality company to be successful. We’re watching this in the US, where strong companies are priced well and trading well in the aftermarket. It’s going to take a while, and everyone needs to remain patient, but I think activity picks up in the back half of this year.
What does this recovery look like?
If you look at the past two decades in Canada – and you exclude the unusual pace of the COVID period – the best years saw a mid-teens number of corporate IPOs. In a less busy year, you might see mid-single digits. Between those two bookends is what I’d describe as a “normal market environment.”
Now, if we reached mid-single digit IPOs in 2024, I’d consider that a success. It would signal a rebound.
The key – though it’s almost a cliche to say it – will be high-quality, well-executed IPOs reopening the market. They need to be priced at a valuation that is attractive to issuers and investors. They need to perform well in the aftermarket. And, importantly, they need to attract the right shareholders: a broad and experienced set.
If we can achieve this with the first few IPOs out of the gate, it will prove that the time is right for issuers to go public in Canada again.
Where do you anticipate activity returning in Canadian markets? Any sectors, in particular?
In Canada’s recent history, the IPO markets have attracted a broad range of sectors – technology, healthcare, energy, industrials.
There are a handful of exciting healthcare and tech prospects that Jefferies is tracking closely, but I also know of several traditional energy companies eyeing public markets.
While IPOs always skew towards sectors with strong momentum, I expect Canadian listings to rebound with a broad range of companies.
What deals are getting done in the face of this prolonged IPO drought?
When a major asset class like IPOs isn’t performing well, it forces sponsors to look for alternatives. They are looking to monetize or partially monetize their positions so they can return money to their limited partners (LPs). How can they leverage M&A or money markets when IPOs are off the table?
Continuation vehicles are a very popular option, especially for longer assets. Sponsors can partially monetize, return capital to their LPs, and pursue future fundraising opportunities.
In other cases, sponsors are remaining patient. They have stretched out their cash reserves by recasting budgets, slowing down growth, and waiting for the right moment for a public exit or growth financing. For issuers in need of immediate growth capital, they have looked to private markets – but those have also experienced a challenging stretch.
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Canada remains a dynamic ecosystem, abundant with strong and innovative companies. Although the past two years have been profoundly challenging for Canadian public markets, trends in the US and Europe are showing green shoots. Experts like Erik Charbonneau see a rebound on the horizon.
Erik is a Managing Director and Head of Investment Banking and Equity Capital Markets – Canada for Jefferies. He was part of the founding team for the recently opened Jefferies offices in Canada. Over the course of a 30-year career, Erik had originated and executed capital markets transactions for client across numerous industries in both Canada and the U.S. Erik has run sector ECM desks in financials, private placements and healthcare and has been responsible for equity capital markets teams in Canada (head of ECM) and the U.S. (co-head of ECM for the Americas). Erik holds a B. Comm from McGill University. You can contact Erik: [email protected] or +1 (416) 847-7395
