In an April 13, 2010, Businessweek article it was announced that the head of equities for TMX Group Inc. That operated the Toronto Stock Exchange and the TSX Venture Exchange had high hopes for the Canadian IPO or initial public offerings market and believed it could top CAD 6.4 billion for the year. This amount he said would be the highest in over a decade and the new issue pipeline reflected the belief the recession is over as stocks and the economy rebounded. At the end of May, a Reuters article noted that while a number of Canadian companies were ready to go public, a handful would expose themselves to the market due to the recent turbulence. Despite this, investors at the annual Canadian Venture Capital and Private Equity Association meeting in Ottawa remained upbeat about the prospects of the IPO market. The question whether should IPO investor look for long term or short term gains depends on whether investors are in for short term profits or long term gains. Given the volatility of the market, the latter may be the more prudent approach.
There is also a global push for increasing of listings on the Canadian equities market. This is exemplified by the example of the North Carolina based online publisher Lulu that chose to bypass the U. S. Stock exchanges and go public in Canada instead. Of course, the company CEO is no stranger to Canada having grown up in Canada. But, the fact that only 2 companies went public in the US in 2009 might be a reason for this choice. It can be less costly to List a stock in Canada, which can involve a less regulatory scrutiny than a US listing. The health of the Canadian market was reflected in the largest amount raised since 1999 that was raised this March by Athabasca Oil Sands Corp. Which sold 75 million shares at CAD 18 each, raising CAD 1.35. This was the richest debut since 1999, when Manulife Financial Corp. Raised CAD 2.48 billion.
The Toronto exchanges have the most mining and oil and gas company, the second largest company and technology company listings and the largest group of public clean technology companies. More than half the Canadian population owns equity. Indices have also outperformed world benchmark indices in the just passed decade. A Canadian listing is a smart choice for many types of companies.
When a company decides to go public, it means it is ready to take a step that has both costs and benefits not faced when it was private. In new IPO sales the majority of the issue is purchased by institutional investors. Investor interest and the state of the stock market are key components of success. Delays or even the ending of the effort can result due to poor investor interest. The three IPO valuation classifications are the Cost, the Income or the Market Approaches. The use of option pricing techniques in valuation is a also a recent rising phenomenon. Valuation models can also be hybrids of these valuation approaches. According to those who have studied results despite the different methodology applied the accuracy does not differ markedly.
The Basic Process
Companies that go public on a stock market in Canada become a reporting issuer with one or more of the Provincial Securities Commissions. The process of going public involves three stages: preparing to go public, going public and life afterwards as a public company. Going public can bring strategic advantages and also associated costs such as the costs of compliance, costs related to a new governance structure and need to be responsible to shareholders. The benefits include the capital to grow and evolve, provide greater flexibility for execution of strategy, a means to monetize and provide liquidity and wealth to shareholders for their investments in the company, increased market value and the stature and security of a public company and the ability to attract and retain talent with share plans that are liquid. The costs include compliance costs, the increased infrastructure such as board and audit committees, being open to regulatory scrutiny, some loss in decision making flexibility, pressure to perform, stock market swings can effect share value and employee morale and restrictions on trading and the discussion of internal affairs. Generally an IPO process takes a little over 3 months or about 100 days to complete.
To make this process as smooth as possible you need to get organized by bringing inhouse order, begin to manage like a public company, develop a public profile, retaining key professional advisors and considering IPO options about the exchanges to be listed on. Bringing order includes crating a realistic business plan, reviewing internal processes and contracts, evaluate related party transactions, retaining an auditor and addressing tax issues and develop several years worth of financial statements, evaluate litigation and potential claims and review of the strength of the management team. As International Reporting Standards, acronym IFRS, will be applied in Canada from January 1, 2011 confer with the auditor to ensure system can provide information that will need to be supplied. Public companies are expected to provide detailed discussions of their preparations for the changeover in their periodic filings and to track IFRS financial information during 2010, to be able to provide the required one year of comparative financial data in 2011 financials.
Companies can go public and become reporting issuers through a prospectus. There are two types of prospectus. One is an offering prospectus that is used in a public sale or a non-offering prospectus that is not used in a public sale. The IPO prospectus is of the former type. Both these types of prospectuses must contain full disclosure about the company for the information of investors and the public.
The How and the Why of the IPO or basics of How to IPO
The process begins when the Board approves the initial offering and the decision to hire an underwriter. Next, the underwriter and auditor do due diligence and then the drafting of the preliminary prospectus commences. After the Board approves the completed prospectus, it is then filed along with related materials. Printed copies of the prospectus are made and a mock road show is run through. Following the actual road show meetings with investors, the pricing of the offering is determined. Then, after final due diligence, there is the step of Board approval of the final prospectus incorporating the pricing and feedback from investors and regulators . Subsequently, there is filing of the prospectus and exchange listing document and copies of the final prospectus are printed for dissemination. Next, the trading begins. Announcements on IPO Canada exchanges lead to initial enthusiasm. Depending on the company, its industry and its market conditions, prices can subsequently change downward.
Figuring out how to IPO can be tricky. Before taking your company public through an Initial Public Offering, be sure to learn about IPO valuation, the IPO market, and the Canadian IPO process from professionals who know it best.