Nearly two dozen companies launched IPOs on the TSX between mid-2020 and late 2021. Nearly half have since been taken private at a loss relative to their initial public market value.Frank Gunn/The Canadian Press
When Anaergia Inc. ANRG-T went public amid a deluge of market debuts in mid-2021, the provider of renewable natural gas (RNG) technology predicted “explosive” growth from building its own bioenergy plants that was based on unreasonable assumptions and accounting errors, a recently-certified class action lawsuit claims.
That the growth never materialized for investors is hard to dispute. Since the stock peaked at $25.71 per share in September, 2021, three months after going public – giving Anaergia a market value of nearly $5-billion – the share price has fallen precipitously after the company cut its financial outlook multiple times. Anaergia shares have rarely traded at more than $3 since March, 2023, and spent all of 2024 worth less than $1.
Anaergia’s current market value is roughly $500-million, or about one tenth of its peak capitalization. The investor lawsuit seeks total damages that are nearly equivalent to what the company is worth today: $430-million.
It is a rare case of investors who were burned when Canada’s last initial public offering boom went bust fighting back and demanding restitution. Of the nearly two dozen companies that launched IPOs on the Toronto Stock Exchange between mid-2020 and late 2021, nearly half have since been taken private at a loss relative to their initial public market value. Most of those that are still public trade below their IPO prices.
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The lead plaintiff in the Anaergia case, Vancouver resident Mohammad Reza Kamrani-Ghadjar, purchased 3,000 Anaergia shares between March 14 and March 25, 2022. When the company withdrew its financial outlook three days later, on March 28, its share price fell 19 per cent in a single day and never recovered.
Mr. Kamrani-Ghadjar alleges Anaergia failed to disclose that some of its revenue came from intersegment sales, which refer to one division of a company selling to another, meaning Anaergia was claiming revenues based on work it was doing for itself.
In a Nov. 13 ruling allowing the case to proceed, Ontario Superior Court Justice Ranjan Agarwal said Mr. Jamrani-Ghadjar “has a reasonable prospect of success in proving that Anaergia’s failure to disclose that some of its revenues came from intersegment sales was an omission.”
“Investors wouldn’t have known from Anaergia’s prospectus that the Capital Sales division’s revenues were being generated from intersegment sales,” the ruling said.
In its IPO prospectus, Anaergia said more than 90 per cent of its revenue came from its capital sales unit, which sells technology that turns food waste and sewage into RNG to third-party buyers with their own facilities. Much of the case hinges on how much Anaergia led investors to believe future growth would come not from simply selling technology and services, but from a separate division that would build, own and operate (BOO) its own facilities.
The IPO prospectus contained a financial outlook that predicted that BOO revenues would skyrocket from $2-million in 2020 to $289-million in 2023, according to the latest version of the lawsuit’s statement of claim.
“The company expected the BOO division to grow significantly,” Justice Agarwal noted in his ruling.
In its first quarter of 2023, the last time the company singled out BOO financial results, the division generated $7.8-million in revenue, suggesting an annual total of roughly $31-million.
Between 2018 and 2020, Anaergia built the Rialo Bioenergy Facility in California. With a capacity to process up to 1,000 tons of food scraps and manure per day from the Los Angeles area, Rialto is considered one of the largest organic waste-to-energy facilities in North America.
After struggling to secure a necessary level of organic waste for feedstock, Anaergia spun Rialto into a subsidiary and the facility was placed into bankruptcy in May, 2023. Rialto was auctioned off to Idaho-based Sevana Bioenergy LLC for US$20-million in June, 2024.
Anaergia still operates Rialto. But after completing a strategic review last year, Anaergia has effectively given up on its BOO division.
Analysts are optimistic about the company’s new direction. In October, Beacon Securities analyst Donangelo Volpe told clients Anaergia is showing signs of a turnaround after a difficult restructuring.
On Nov. 30, Paradigm Capital analyst Alexandra Ricci initiated coverage of Anaergia with a “buy” rating and a $4.75 per share price target, suggesting the stock could nearly double by the end of 2026.
Anaergia and the analyst community have both been largely silent on the potential impact of the class action lawsuit. Mr. Volpe and Ms. Ricci did not respond to requests for comment.
The only public comment the company has made about the case was in 2023, shortly after the first statement of claim was filed, and it promised to “vigorously defend” itself.
In an e-mailed response to questions, Anaergia said it was appealing part of the Nov. 13 ruling.
“The company intends to continue defending the balance of the action,” Anaergia said in an unsigned e-mail from its investor relations account. “The certification order has not yet been settled.”
SMK Law PC has been appointed as class counsel to represent investors in the case. In an interview, SMK founder Soheil Karkhanechi said this is an important case for investor rights.
“It underscores the essential requirement for full, true and plain disclosure – not only in ongoing reporting, but also in prospectuses for share offerings, including IPOs,” Mr. Karkhanechi said.
“We are committed to securing meaningful recovery for the substantial losses investors have suffered.”
Craig Lockwood, a partner in the disputes practice of law firm Osler, Hoskin & Harcourt LLP, who is not involved in the case, said class action lawsuits in Canada usually settle before going to trial.
“They very rarely go the distance to the point of a determination on merits,” Mr. Lockwood said. “If it goes the distance, it will be a multiyear process for sure.”