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Executive Summaries Jan 22, 2019

Targeting an IPO in 2019? What Unicorns Should Expect

An initial public offering (“IPO”) can represent a significant opportunity for a company. It can attract significant funding, liquidity and public exposure. 

While there has been a decline in broader follow-on equity financing activity in Canada, the US equity market’s performance stands out in 2018 by being the strongest market since 2014 [1]. Part of the reason why Canadian IPO volumes were muted in 2018 is due to the underperformance of resource-related sectors and, consequently, the lack of new names in such sectors entering public markets [2]. Aftermarket performance of recent issuers serves as evidence of investor appetite for newcomers as both institutional and individual investors look for quality companies that exhibit strong growth prospects [3].

2019: a Record-breaking Year for IPOs?

On the other hand, concerns that more market declines lie ahead and that the economic cycle may have turned could actually encourage and revive IPO activity by putting pressure on firms considering listings to finally take the plunge. Many anticipate 2019 could be a record-breaking year for IPOs in terms of money raised. The fact that investors have an eye out for shares in fast-growing companies is one of many factors that may encourage startups and other private companies to go public in 2019. 

It is expected that Uber, Lyft, Slack, Palantir, Pinterest and Airbnb, all of which are unicorns, will likely transition to public markets in the first half of 2019.

Uber, Lyft, Slack and Palantir are considering IPOs that, according to recent reports, could reach a combined valuation of over $200 billion [4].

2018 marked an historic year for the cannabis industry and marketplace with TerrAscend Corp. (CSE:TER), Canopy Growth Corp. (TSX:WEED), Neptune Wellness Solutions Inc. (TSX:NEPT), Aphria Inc. (TSX:APHA) and Aurora Cannabis Inc. (TSX:ACB). These Canadian cannabis stocks demonstrate Canada’s competitive advantage regarding the continued and future relevance of this sector in Canadian capital markets. Canadian companies can benefit from the industrial, information technology and health care sectors in order to be more competitive on Canadian capital markets. 

What You Should Consider Before Going Public

Going public and offering stock in an IPO represents a milestone for certain ambitious privately-owned companies. We will hereunder describe the main benefits of going public and the criteria that CEOs of outstanding startups and other private companies should consider when thinking about eventually going public.

A successful IPO by a company offering its securities to the public can generate substantial proceeds and can render the company’s shares more marketable as there is a regulated and liquid market on which the company’s shares are traded. One of the main reasons companies decide to go public is to raise money and spread the risk of ownership among a larger group of shareholders [5]. In addition to raising funds, going public creates currency for acquisitions in order for the company to complete mergers and acquisitions by using its publicly traded shares as “currency” for an acquisition [6]. Moreover, the IPO process can be an opportunity to improve the company’s ability to attract and retain top talent personnel through tax-efficient employee stock option plans. 

A significant advantage of public listing is to provide investors an opportunity to realize appreciation in value of their investment. An IPO would also facilitate future financing and increase access to a broader range of financial markets and vehicles to raise additional cash more easily in the future in subsequent offerings. When a company goes public, it enhances the perception of a company’s financial stability and transparency. In addition, as the going-public process is quite rigorous, it tends to reassure customers and suppliers. 

It is often argued that an IPO is an expensive and time-consuming process, with numerous regulatory requirements. We believe that with the appropriate team of advisors (including legal counsel, investment bankers and auditors as well as an experienced CFO that could be attracted to join the venture in due time), it is possible for companies to successfully prepare for an IPO within reasonable fees by adopting an efficient and practical approach. 

As the above points sum up, it is important to underline the fact that investors always like to invest when it is a buyer's market. 2019 is going to be a big year for IPOs, and it could be a big year for you!

BCF’s securities team offers effective, practical and thorough advice to companies wishing to complete IPOs, RTOs, as well as to CPCs or SPACs. Our team is also renowned for its unique expertise in exempt market securities, and we regularly represent issuers and brokers on the public and exempt markets.

 

To learn more about IPOs, sign up for our Strategic Forum on Corporate Financing, which will be held on Tuesday, February 19, 2019 in Montreal and Quebec City.

[1] Deloitte LLP, “Canadian IPO Market Review - Q3 2018: IPO market in a holding pattern”, online (pdf): <https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/audit/ca-audit-ipo-quarterly-report-en-aoda.pdf>.
[2] Ibid.
[3] Ibid.

[4] Eric Rosenbaum, “Get Ready for the $200 billion IPO shakeup in 2019” (December 17, 2018), online: <https://www.cnbc.com/2018/12/14/get-ready-for-the-200-billion-ipo-shakeup-in-2019.html>.
[5] Practical Law Canada Corporate & Securities, “Deciding to Go Public: Initial Public Offering (IPO)”, Thomson Reuters, Practice Note, <https://ca.practicallaw.thomsonreuters.com/6-571-8606>.
[6] Ibid.