Mackie Research Capital analyst Nikhil Thadani says the dollars have not yet caught up to a rich Canadian technology investible space. But he believes there are many reasons to believe they soon will.
In a research report to clients this morning, Thadani, with some caveats, laid out the bull case for tech IPOs in Canada. The analyst says that while he doesn’t expect meaningful IPO activity for the next nine to 12 months, he does believe there are catalysts that could make 2017 a pivotal year for new entrants.
Thadani says many companies that might have IPO’d in a different environment have been encouraged to stay private by a confluence of forces he thinks may not be sustainable. He points out that privco tech valuations have been bid up by non-traditional investors such as hedge funds, corporations and mutual funds who have been looking for returns in a low-yield environment. He says factors such as anticipated interest rate increases in the U.S., a potential slowdown in China, and global macro concerns weakening returns could slow VC investments and “force” some companies to IPO.
2015, with just four Canadian technology IPOs for gross proceeds of ~$420 mln represented a 70% increase from the ~$240 mln ten-year average. In our view this goes to show a decade of relative starvation for quality technology IPOs in Canada.
Thadani says many companies will find that being public will not be such a bad option compared to the pressure of ruthless escalating private valuations that are priced for perfection. In Canada, he says, some will no doubt look to the recent successful public offerings from Shopify and Kinaxis. The analyst notes that while things seem dead right now in the midst of 2016’s market doldrums, the stage is, in fact, set for a tech resurgence of sorts.
“2015, with just four Canadian technology IPOs for gross proceeds of ~$420 mln represented a 70% increase from the ~$240 mln ten-year average,” notes Thadani. “In our view this goes to show a decade of relative starvation for quality technology IPOs in Canada. 2015 Canadian technology IPO proceeds equate to under 1% of global technology and internet IPO funding, based on data from Bloomberg discussed vs. estimated Canadian share of global GDP of ~3% in 2015, according to IMF (in USD terms).
The analyst says the current pipeline is quite promising.
“Some widely anticipated Canadian technology companies such as BuildDirect, Desire2Learn (D2L), Hootsuite, Vision Critical etc could provide a widely appreciated push to the Canadian technology ecosystem if these companies were to have successful IPOs,” he says. “The TSX, in a December 2015 publication highlighted a window of opportunity in ~April of 2015, which lasted ~four weeks and was instrumental in setting up a successful H1/15 for the Canadian technology sector. We believe such windows will arise again.”