IPO market hits pause amid Q1 volatility

The market for initial public offerings (IPOs) paused for a breather in the first quarter of 2018 as issuers and investors assessed the implications of interest rate hikes, recent U.S. tax changes, market volatility and threats to world trade, finds a PwC survey. But if the pipeline of new issues is any indication, the market won’t stay quiet for long.

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The list of potential new issues stands in stark contrast to a quarter that saw just nine new issues completed on all exchanges, for a value of $157 million. By comparison, total value of IPOs in the first quarter of 2017 reached $571 million from six new equity issues across all Canadian exchanges—the second-best initial quarter result in the past decade.

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The first quarter of 2018 saw one issue completed on the TSX with a total value of $150 million. The CSE contributed three issues and the Venture added five with a total value of $7 million.

“A slow first quarter is really pretty normal,” says Dean Braunsteiner, PwC national IPO leader, in a release. “With the rush of activity at the end of last year, it isn’t surprising to see the market taking stock—particularly in light of the extreme volatility we saw in the quarter.”

He also says the market is assessing effects of U.S. tax reform, as well as NAFTA negotiations, U.S. trade sanctions and interest rates.

The sole issue on TSX in the first quarter was the IPO of Pinnacle Renewable Holdings Inc, an industrial wood pellet manufacturer and distributor, and the first issue from the energy sector this year.

The pipeline of new issues points to an uptick in activity for the balance of the year if the market can see beyond short-term disruption, says Braunsteiner.

What has carried over from last year is the slow improvement in activity in the mining sector where seven new issues were registered on the CSE and Venture Exchange, he says.

Although the survey doesn’t count reverse takeovers by private firms as IPOs, Braunsteiner has watched a number of companies take that route to public ownership recently.

“Some companies perceive it as an easier, less expensive route to going public. That’s debatable,” he says. “While it isn’t a significant number overall, reverse takeovers represent a channel that bears watching, particularly as new entrants in the busy cannabis sector jockey for a place in public markets.”

Nearly a dozen reverse takeovers appeared on Canadian exchanges in the first quarter.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.