Investment bankers are encouraging Toronto-listed companies to pursue acquisitions or raise capital as deal volumes in Canada plummet to their lowest point in over two decades. This downturn contrasts sharply with the US market, where offerings have seen consistent growth.
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Canadian equity and equity-linked offerings experienced a significant decline for the third consecutive year, reaching their lowest level since 2001. Bloomberg data reveals that 236 deals were completed in 2024, raising C$17.2 billion ($12 billion), a notable decrease from the C$19.8 billion raised in 2023. This trend underscores a concerning stagnation in the Canadian market.
Illustrative comparison of Canadian and US equity offering trends.
In stark contrast, the US market has witnessed a surge in such offerings for three years running. This divergence raises questions about the underlying factors contributing to the contrasting performance of the two neighboring economies.
Peter Miller, head of equity capital markets at BMO Capital Markets in Toronto, emphasizes the need for increased risk-taking among Canadian corporations. He suggests a more proactive approach to capital projects and mergers and acquisitions to stimulate growth. While deal volume decreased in 2024, the proportion of successful “clean deals” actually rose, suggesting investor appetite remains strong. The core issue, according to Miller, lies in the limited supply of new offerings, not a lack of demand.
Clean Deals Signal Investor Confidence Amidst Low Supply
A “clean deal” signifies the seamless sale of underwritten securities by banks, unlike “hung deals,” which require steep discounts or risk leaving banks with unsold inventory. The prevalence of clean deals indicates a positive underlying sentiment among investors.
Nitin Babbar, global co-head of equity capital markets at RBC Capital Markets, echoes this sentiment. He highlights that investors are actively seeking opportunities in companies poised for growth, with every deal this year being well-received. This suggests a potential for significant market activity if more companies choose to pursue equity offerings.
Illustrative representation of clean vs. hung deal completion rates in the Canadian equity market.
RBC and BMO Dominate Canadian Equity League Tables
For the fifth consecutive year, RBC Capital Markets and BMO Capital Markets have led the Canadian equity and equity-linked league tables. RBC facilitated C$2.8 billion in capital raising for companies, closely followed by BMO with C$2.7 billion. These two institutions have consistently held the top two positions since 2019, collectively accounting for 34% of total offerings this year. This underscores their significant influence on the Canadian equity market landscape.
Mining Sector and Groupe Dynamite IPO Offer Glimmer of Hope
Despite the overall downturn, there are positive indicators within specific sectors. The mining industry experienced a notable increase in equity capital raising, suggesting a resurgence in this area. Furthermore, after an 18-month hiatus, the Toronto Stock Exchange witnessed an initial public offering (IPO) by Groupe Dynamite Inc. This C$300 million deal, valuing the company at C$2.3 billion, provides a much-needed boost to market confidence.
Lower Capital Costs May Spur Future Activity
Declining capital costs, driven by the Bank of Canada’s five interest rate cuts this year, offer a potential catalyst for increased activity. This more aggressive monetary easing compared to the US Federal Reserve creates a favorable environment for investment and growth. Lower interest rates typically translate to reduced borrowing costs, making capital projects and acquisitions more attractive.
RBC’s Babbar notes the significant reduction in interest rates and the resulting lower cost of capital, which he believes is fostering a more conducive environment for growth. This suggests that the current market conditions may pave the way for a resurgence in equity offerings and deal-making in the coming months. The lower cost of capital could incentivize companies to invest in expansion, innovation, and acquisitions, potentially revitalizing the Canadian equity market.
