Since the financial crisis, and before the onset of the pandemic, the Canadian appetite for technology had remained paltry at best. From 2016 through 2019, it seemed that the Nasdaq would routinely touch all time highs every quarter, all the while the Canadian public markets had a minimal universe of names to be excited about. Given this backdrop, few Canadian domiciled companies ever even considered going public as a way for shareholders to liquidate and/or raise capital for future growth. And when you crunch the numbers, the reasons for the lackluster enthusiasm on both sides of the Canadian table seem obvious.
Since 2010, major US exchanges have raised over $180B for 373 technology companies in the traditional IPO process. This is in comparison to only $3.6B for 25 companies in Canada or 50X less than our US counterparts. But these numbers alone don’t tell the full story when it comes to public market technology investing in Canada. Due to a low currency, coupled with depressed valuations, public market firms in Canada have been fertile hunting grounds for international acquirers. Since 2010, over $35B in market capitalization across 86 firms has been “taken-out” of the Canadian technology public markets through acquisition. This is 10X the amount that has been replaced via IPO (figures 1-3).
Figures 1-3 Canadian and US IPO Statistics
It is clear that Canadian public technology companies have the potential to create value, as we assume the over $35B in acquisition capital was placed to generate a positive return on investment. Nonetheless, for over a decade Canadian public market investors have provided little support for new home grown talent. And private Canadian technology companies haven’t been interested in asking Canadian public investors for their money. But this may be changing in view of some recent success stories. In particular, Nuvei Corporation recently raised the largest technology TSX IPO in history at US$700M. This record is on the back of several other successful listings over the past two years, including:
- Lightspeed – $240M IPO – Feb 2019 – 2.5X+ return since IPO
- Docebo – $75M IPO – Aug 2019 – 3X+ return since IPO
- Dye and Durham – $150M IPO – June 2020 – 2.5X+ return since IPO
And of course, the Canadian darling that paved the way for everyone:
- Shopify – $159M IPO – April 2015 – 40X+ since IPO
We are excited that Canadian technology companies have an increased set of options given the renewed strength in Canadian public markets. Not all companies should or will go public, but it’s clear to see that it can be a great option for those companies that are ready and able to do so. Furthermore, healthy capital markets can lift entrepreneurial ambition and promote long-term thinking – two concepts we can readily get behind.
Kenndal McArdle, CFA
October 26, 2020
 Minimum transaction size of $20M CAD. GICS sectors included: IT, Media and Entertainment and Health Care Technology. RTO and direct listings not included in transaction totals. Source: CapitalIQ
Pricing source: CapitalIQ, as of Oct 23, 2020