Stifel Nicolaus Canada’s loss will be someone else’s gain.
On August 22nd, in what was a surprise to many on the street, Stifel Financial Corp. said it would close Canadian subsidiary, Stifel Nicolaus Canada, by years end. It began shuttering its operations, which employed more than 70 in Calgary and Toronto, soon after the announcement.
There may be a myriad of reasons why Stifel is leaving Canada (its recent courtroom loss against junior Stetson Oil and gas comes to mind), but I believe the move is ill-timed and that its Canadian division would have contributed much more than the $18.8-million in revenue it did last year. At 1.2% of its overall revenue, Canada was just a rounding error to Stifel, which posted more than $1.5-billion in revenue last year. Nonetheless, I think there is long-term opportunity here that Stifel Nicolaus will miss out on, and someone else will gladly pocket.
Maybe St. Louis-based Stifel never really wanted to come to Canada in the first place. The bank’s entry into Canada came through its $300-million pickup of Weisel Partners Group in 2010, which itself had purchased boutique mining underwriter Westwind Partners in 2007. 2010 was not a great entry point into this country for any kind of market related business. Money trickled out of the commodities boom, and by the beginning of this year, according to the Investment Industry Association of Canada, the number of people working at securities firms was at its lowest point since 2006.
Stifel, of course, was better known for its dealings in the waning mining and metals space, as was most anyone who has made money in the past decade. But the firm was coming off co-leading the $21-million IPO of Ottawa’s talent management firm Halogen Software (TSX:HGN), which followed on the wildly successful IPO of Vancouver-based security firm Avigilon (TSX:AVO) in 2011. The gap between notable tech IPOs won’t be that wide again for a generation, is my guess.
Had they decided to remain in Canada, Stifel could have quickly built a strong team around its star tech analyst Blair Abernethy, and began to capitalize on a sector rotation that is in its infancy. The more than decade long run in commodities might have in fact been so sustained that many forgot that the markets are indeed cyclical. Last summer, The TSX Technology Index bottomed at just 1.6% of the exchange’s overall value. Now the pendulum is beginning to shift, and money is once again flowing into tech.
“There is a significant latent demand for more listings – expect a lineup of IPOs [initial public offerings] over the next several quarters,” M Partners analyst Ron Shuttleworth told the Globe and Mail in July.
Public tech listings, however, are now coming fast and furious, and many aren’t bothering with the traditional IPO route. VIXS Systems (TSX:VXS), a Toronto-based semiconductor company began trading in July through an amalgamation agreement with capital pool company, after completing a $57.4 million financing, led by GMP Securities, in May.
Urthecast (TSXV:UR), a Macdonald Dettwiler (TSX:MDA) spinoff that streams video and images of Earth from space, recently raised more than $25-million in a reverse merger with a mining shell.
And Magor Corp (TSXV:MCC), the latest venture from Mitel and Newbridge Networks founder Terry Matthews, recently raised $5.9-million after merging with Toronto-based capital pool company Biovest Corp.
It is indeed a large gap between the $18.8-million topline Stifel Nicolaus Canada contributed and its parent company’s $1.5-billion, but there are literally hundreds of viable tech trading and underwriting candidates waiting to draw those numbers closer, names like BuildDirect, Vision Critical, Thalmic Labs, Desire2Learn, Wattpad, Shopify -the list goes on. And on.
There is a genuine tech revival going on across Canada. It’s too bad Stifel Nicolaus won’t be participating in it.