Volatile Market, U.S. Slowdown, Credit Crunch Batters IPOs, PwC Survey Says

Ottawa - Initial Public Offerings (IPOs) on Canadian equity markets fell to a new record low in the second quarter of 2008, according to the latest PricewaterhouseCoopers (PwC) survey of Canadian equity markets.

Canadian exchanges saw 18 IPOs from April 1-June 30, 2008, attracting only $466 million in new equity, compared to the 20 IPOs worth $555 million in the second quarter of 2007, PwC reported. The TSX had seven of the second quarter's new issues for a total value of $434 million, but in the same period a year ago the TSX had eight IPOs worth $453 million.

"To put these results in context, the 2007 results were already among the lowest on record," said Ross Sinclair, national leader of PwC's IPO and income trust services.

There were a total of 38 new issues on all exchanges in the first half of 2008, down from 41 in the same period of 2007. A total value of $614 million in the first half of this year was off almost one-third from the $855 million in the first half of 2007. The TSX saw 10 new issues in the first half of this year for a value of $547 million, down from 13 IPOs valued at $644 million during the same period last year.

At its current pace, Sinclair said, the market will struggle to reach half the value of the slowest period of the decade when just 46 new issues worth $2.07 billion reached the market in 2001. 2005 was the best year for IPOs, when 119 new issues worth more than $6.9 billion came to market.

"The IPO market in Canada is in the centre of a perfect storm of negative factors that are pushing the market into record low territory," said Sinclair. "The extreme volatility of the market, with large swings and relatively low valuations for any company that is not in commodities or oil and gas, is just one factor. A slowdown in the US economy, continued uncertainty in credit markets, concern in the financial services sector, the disappearance of income trusts and the impact of higher oil prices have all contributed to an environment where it is hard to see any optimism."

Sinclair said that to complete an offering in the current market firms need to have "a really compelling story," which he said would include showing that a firm is a quality company with a strong track record that has "flair and growth."
"The only company that brought that combination to the market in the second quarter was Sprott Inc." Sprott completed the largest IPO on the TSX in the quarter, a $200 million issue in April, 2008, he said.

While the second quarter of 2008 was an improvement from the first quarter, Sinclair says he sees no significant upward trend that would lift the IPO market before this fall.

"Even the TSX Venture exchange, which can sometimes show some interesting trends, has little good news," he said. PwC's survey found just nine IPOs with a value of $30 million made it to the junior exchange in the second quarter, less than a third of the $99 million that was placed on the TSX Venture in the same period of 2007.