Investment bankers say the dynamics have changed, making it harder to price deals
A sign outside the Nasdaq stock exchange in New York City promotes SpaceX's initial public offering on Friday. The stock market returns for recent Canadian IPOs are rather mixed, writes Tim Kiladze.
After a multi-year drought, initial public offerings are back in Canada, with more than $2-billion worth of new shares sold since March. The resurgence of deals is good for the Toronto Stock Exchange, which has been losing listings to takeovers, and in theory, it is good for public investors, because they can finally get their hands on businesses owned by private backers. The problem: The stock market returns for recent Canadian IPOs are rather mixed.
In some cases, they’re quite rough. This week, the country’s largest drug manufacturer, Apotex Health Corp., priced its long-awaited IPO, and the deal size was increased to $1.3-billion from $1-billion because of heavy investor demand. The company’s shares were initially sold at $24 apiece, and they are already up 21 per cent since they started trading on Wednesday. That’s a win.
Apotex have struggled since they started trading. Shares of Lumina Metals Corp., which raised $406-million in April, are down 11 per cent since listing, and shares of AGT Food and Ingredients Inc., which raised $450-million from public investors in March, are down 24 per cent. This despite the stock market remaining relatively hot, allowing the largest-ever IPO, for Space Exploration Technologies Corp., or SpaceX, to get sold in the United States this week.
The stock jumped more than 19 per cent after opening at US$150 a share on Friday. Investment bankers say a host of factors are at play, and they make it harder to price deals correctly.
American hedge funds are now regular buyers of Canadian deals, and they can skew the order books; early investors in IPO companies are sometimes resistant to locking up their shares; and a shrinking pool of long-term fund managers has narrowed the pool available to buyers, among other things. The Globe and Mail is not naming its four banking sources because they are not authorized to talk publicly about the recent deals.
For all these reasons, companies that receive heavy investor demand during the marketing phases of their IPOs may not see their shares rise once they are listed. Lumina, which is a Canadian-backed copper miner developing assets in Poland, increased its deal size to $406-million from $343-million because its order book was multiple times oversubscribed, according to people familiar with the transaction.
Yet within one week of trading, Lumina’s shares dropped 17.5 per cent, and they’ve bounced around in negative territory since. The S&P/TSX Composite Index is up roughly three per cent over the same period. When comparing deals, company specifics matter.
A development-stage copper miner is very different from an agricultural company , or a drug manufacturer , or a natural gas storage provider . But the way their deals are structured can also have material consequences on how their shares trade. Twenty years ago, mutual fund companies were major buyers of new IPOs, yet their participation has waned over the years.
Many sector-specific fund managers have disappeared because of poor performance during cyclical downturns. Hedge funds, meanwhile, have multiplied in number and bankers say they are keen to participate in IPOs because research has shown that newly listed shares have a roughly two-thirds chance of rising once they start trading.
With the odds in their favour, they are happy to try for a 10 per cent gain in a matter of days, sell, and do it all over again in a different deal. It can radically change the investor base in a matter of days or weeks. Bankers say hedge funds can also be aggressive during the marketing phase of a deal.
For decades, investors have ‘padded’ their orders, asking for more shares than they really want, because they fear there will be so much demand that they’ll only get a fraction of what they desire. Some hedge funds, though, will pad their orders by so much that the bankers never quite know what the true demand is. A deal may look oversubscribed, but in reality, it is barely covered.
With Apotex, the main backer is SK Capital Partners LP, a reputable private equity firm. Because SK can’t sell its whole stake in the IPO, it is happy to sign a lock-up agreement that prevents it from selling more for 180 days. Unloading more shares too quickly would only put downward pressure on the price. But in other deals, often for natural resource companies, it is common to raise money through multiple rounds of friends and family financings.
Wrangling all these investors to sign lock-up agreements can be tough. At the moment, it is too early to tell if these issues will plague more deals. It is entirely possible there will be more winners, like Apotex, than losers. But Canadian investors have been burned by IPOs before, notably by the technology companies that went public during the COVID-19 pandemic, which means investment bankers have their work cut out for them.
Please follow us on Google to support us Canada News Breaking News Video Canadian Breaking News Breaking News Globe And Mail Breaking News Globe And Mail Canada News Photos World News Local News National News Us News Foreign News Sports News Arts News Life News Lifestyle Canada Traffic Canada Weather Trudeau Government Federal Government Canada Sports Canada Sports News Politics Politics News Political News Political Opinion Environment Economy Technology Education Travel Canada Alberta Bc British Columbia Manitoba Ontario Quebec Nova Scotia Pei New Brunswick Newfoundland And Labrador Nunavut Northwest Territories Yukon Globe And Mail
Canada Latest News, Canada Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
Why the SpaceX, OpenAI, and Anthropic IPOs won't derail the bull marketDon't fret about a lot of stock coming to market, Goldman Sachs contends.
Read more »
More than a game: Why FIFA 2026 is an investment, not a cost, for CanadaWith Canadian taxpayers already pouring $1 billion to co-host the World Cup 2026 alongside the U.S. and Mexico, all eyes are on the country, which needs to use this opportunity to shift its sporting landscape.
Read more »
U.S. Ambassador to Canada: Trump Seeks Collaboration, Not Dependence, on CanadaThe U.S. top diplomat in Canada says President Trump is actually looking for ways to collaborate with Canada, despite his statement that he is 'not looking to renew' the Canada-U.S.-Mexico-Agreement on trade.
Read more »
Canada coach Marsch keeps injured defender Bombito on Canada's World Cup squadDefender Moïse Bombito will remain on Canada’s World Cup roster, though his availability is unknown as he continues to recover from a broken leg.
Read more »