Private equity-backed IPOs raise $2.3 bln in 2017, drive market rebound

Canada’s market for initial public offerings came roaring back this year from a dismal 2016, due in no small part to new issues backed by private equity and venture capital funds.

This year “was a breakthrough year in the IPO market, one of the best of the past decade,” Dean Braunsteiner, national IPO services leader at PwC Canada, told PE Hub Canada. “While there were not as many IPOs as in some prior years, the offering amounts were big.”

In October, PwC Canada reported $3.3 billion raised by IPOs on domestic exchanges in the first nine months, compared with less than $2 million in the year-earlier period.

Braunsteiner gives some of the credit to PE and VC funds investing in the wake of the 2007-2009 recession and now on the lookout for liquidity opportunities. This trend, combined with pent-up demand for IPOs and rising share prices late last year, created a “perfect storm,” he said.

The data support this argument. PE Hub Canada reported 14 PE- and venture-backed IPOs announced or completed in 2017. Nine of them were closed by the end of September, generating $1.7 billion or roughly half the total.

They included the public debuts of some iconic brands. Outerwear maker Canada Goose and vitamin maker Jamieson Wellness were family-owned before being acquired respectively by Bain Capital and CCMP Capital Advisors. Canada Goose raised $390 million from its IPO in March, while Jamieson took $345 million in July.

The parade continued in the fourth quarter with IPOs by Searchlight Capital Partners-backed clothing brand Roots and Bedrock Industries-backed steel producer Stelco.

Dean Braunsteiner, Partner and National IPO Services Leader, PwC Canada
Dean Braunsteiner, Partner and National IPO Services Leader, PwC Canada

They were joined last week by Neo Performance Materials, an advanced-materials supplier owned by Oaktree Capital Management. Neo Performance raised an initial $200 million after lowering the price of its offering from an earlier target of as much as $345 million.

Taken together, a dozen Canadian PE- and venture-backed IPOs collected $2.3 billion in 2017.

Braunsteiner says it is difficult to tell whether the robust IPO activity will be sustained next year because of the reduced transparency of potential issuers. “While companies previously telegraphed their intentions, they’re now holding their cards close to the chest,” he said.

Braunsteiner expects exit-hungry PE and VC funds to remain a key influence. This was suggested in a November report that waste manager GFL Environmental is planning a $1 billion IPO as early as Q1 2018. GFL is backed by HPS Investment Partners and Macquarie Group, among others.

PE- and venture-backed IPOs were welcomed by public investors in 2017 because they reflect “proven business models and predictable revenue streams,” Braunsteiner said. In Canada’s resource-dominated exchanges, they also introduce more sector diversity.

This is seen in new tech issues, prominent in this year’s early months. Examples include real estate tech platform Real Matters and biotherapeutics provider Zymeworks, which accounted for Canada’s first venture-backed IPOs in two years.

As a private entity, Real Matters was backed by Whitecap Venture Partners, among others, while investors in Zymeworks included BDC Capital, CTI Life Sciences Fund and Lumira Capital.

A substantial crop of other VC-funded companies are signalling an interest in going public. Among them is retail POS solution Lightspeed, which in October closed a $207 million Series D round, the largest for a Canadian IT company in 25 years, partly to ensure an IPO path.

Energy-related IPOs also had profile early on. Proppants supplier Source Energy Services and oilfield-services provider STEP Energy Services, backed respectively by TriWest Capital Partners and ARC Financial, both completed offerings.

Braunsteiner says resource companies, neglected of late by public investors, could be among next year’s beneficiaries of a revived IPO market.

Photo of Dean Braunsteiner courtesy of PwC Canada