One of the oldest sayings on the Street is when the ducks are quacking, you feed them: The ducks would be investors, and the food is equities.
Well, according to PricewaterhouseCoopers, the ducks are calling out, loudly and clearly, for large, high-quality initial public offerings. All corporate Canada needs to do is crank out the deals.
PWC is out Tuesday with its quarterly survey of IPO activity, and found there's a strong appetite for $100-million-plus offerings.
There were three IPOs of $300-million or more on the TSX during 2009, and that suggests the market can absorb quality new issues in 2010, said Ross Sinclair, national leader of PwC's IPO services team.
"There wasn't an abundance of activity during the year, but the larger issues certainly tested the market's appetite for new equity and the appetite is there," said Mr. Sinclair in a press release. "The market is ready for new issues; the new issues just aren't ready for the market yet."
The three large debuts last year came from insurer Genworth MI Canada, which tapped markets for $850-million, utility Capital Power Corp., which raised $500-million, and retailer Dollarama, a $300-million offering.
Private equity investors are expected to fill the demand for new issues by selling portfolio companies, with a half dozen IPOs expected to come from Canadian funds in coming months.
The PwC survey showed that "despite many hopeful signs that pointed to a recovery in the last half of the year," the overall level of activity was muted.
Over the course of 2009, there were 28 new issues on all Canadian exchanges for a total value of more than $1.8-billion. That represented an improvement over the $682-million raised through 57 new issues in all of 2008, but well short of the record activity levels of earlier in the decade.
"An IPO market of $1.8-billion is not what we would expect for Canada at this stage of a recovery. With the fundamentals falling into place, an annual IPO market of $4-billion is not out of the question," predicted Mr. Sinclair.
"The volume of secondary equity offerings as 'bought deals' speaks to investor confidence. Rising valuations, improved liquidity, more stable markets, better pricing and credit spreads will also help."