Enbridge In the world of finance, optimism can be a precious commodity. Recently, a C$4.6 billion capital raise by Enbridge (ENB.TO) and a slew of new U.S. deals have kindled hope for a resurgence in Canadian Equity Capital Markets (ECM) issuance. Bankers and lawyers are keeping a watchful eye on these developments, and for good reason. Enbridge’s monumental equity sale, undertaken to finance its acquisition of three utilities from Dominion Energy (D.N), has propelled Canadian ECM issuance to a two-year high of C$6.7 billion ($5 billion) in the third quarter of this year, according to data from Refinitiv.
Enbridge A Glimpse of Optimism
“I think there is evidence out there that for the right transaction for the right reasons, investors will show up,” said François Carrier, co-head of Desjardins Capital Markets. He added, “We’re certainly in our team talking about a progressive opening of the market between now and the end of the year, and we’re certainly more optimistic going into 2024 in terms of what is achievable.”
Enbridge The journey to this optimism, however, has been far from straightforward. In 2022, Canadian ECM issuance hit a more-than-22-year low, amounting to just C$13 billion. IPOs in Canada took a hit as well, plummeting to a three-year low of C$1.6 billion in 2022 and only reaching C$201.7 million in the first half of this year, as per Refinitiv data.
Enbridge Signs of a Comeback
Hope for a revival began to sprout recently, fueled by a flurry of new large offerings in the United States and Enbridge’s game-changing deal. Companies like marketing automation firm Klaviyo (KVYO.N), Arm Holdings (ARHL.BO), and Instacart (CART.O) all made their market debuts with strong initial demand. Notably, Enbridge’s shares were trading about 1.8% higher than the price they were placed at on Sept. 8, adding fuel to the optimism fire.
This string of successes has emboldened market participants to believe that the demand for IPOs, which had been severely affected over the last two years by the pandemic, geopolitical tensions, and interest rate hikes, may finally be on the upswing.
Preparing for the Future
“There is a long list of companies out there…that have been doing quite well over the last while and that are starting to dust off their IPO plans and their work plans to reinvigorate the process,” said Jeff Hershenfield, co-head of the Capital Markets and Public Mergers & Acquisitions Group at law firm Stikeman Elliott in Toronto.
Stephen Pincus, a partner at the Toronto office of law firm Goodmans, echoed this sentiment, stating that market participants were hopeful of an IPO window opening up in the coming months.
Canada’s main stock exchange operator, TMX Group (X.TO), currently has approximately 1,600 companies in its initial public offering (IPO) pipeline, with more than half of them being technology companies, according to CEO John McKenzie. This indicates a considerable appetite for growth.
Treading Cautiously
Despite the positive signs, not all dealmakers are anticipating a sudden surge in supply, primarily due to the uncertain macroeconomic environment that continues to keep secondary equity markets volatile. The post-sale performances of shares of Klaviyo, Arm, and Instacart also tapered off after strong first-day openings, potentially dampening hopes for a full-scale revival of Canadian equity capital raisings and IPOs.
Neil Selfe, founder and CEO at advisory INFOR Financial Group, provided a sobering perspective, stating, “The fact is the market is materially better than it was six months ago, but we are not out of the woods yet, and investors generally are still not receptive to hearing about riskier earlier stage stories. We do not have enough data to declare the IPO market open. Our own view is that we are still 12 to 18 months away from a robust IPO market.”
In conclusion, the recent developments, led by Enbridge’s substantial capital raise and the positive performance of new U.S. offerings, have undoubtedly injected a dose of optimism into the Canadian ECM landscape. While there are signs of a potential revival, caution remains the watchword, with many stakeholders treading carefully in these still uncertain times.
FAQs
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What prompted the recent optimism in Canadian Equity Capital Markets?
The optimism stems from Enbridge’s C$4.6 billion capital raise and a series of successful new offerings in the United States. -
How did Canadian ECM issuance perform in 2022?
In 2022, Canadian ECM issuance hit a more-than-22-year low of C$13 billion, and IPOs reached a three-year low of C$1.6 billion. -
Which companies made strong market debuts recently?
Companies like Klaviyo, Arm Holdings, and Instacart experienced strong initial demand during their market debuts. -
How does the CEO of TMX Group view the IPO pipeline?
TMX Group’s CEO, John McKenzie, stated that the IPO pipeline comprises approximately 1,600 companies, with a significant portion being technology companies. -
What is the outlook for the IPO market in Canada?
While there are signs of improvement, experts believe it may still be 12 to 18 months away from a robust IPO market due to ongoing uncertainties.