There is still value to be found in Canadian energy names: BMO Capital Markets
Bank of Montreal’s capital-markets division grabbed the top spot for Canadian equity sales in 2020, leading the ranking for the first time in a decade as the coronavirus pandemic pushed companies to stockpile cash.
BMO Capital Markets advised on 52 equity and equity-linked issues with a total value of $3.76 billion. Overall, Canada saw 488 issues with a total value of $36.6 billion. That’s up 22 per cent from 2019 but 5.5 per cent below average for the previous five years. The rankings and data are as of Dec. 30 and may change as more deals are recorded.
The COVID-19 crisis prompted some companies to tap equity markets to stockpile cash, either to make sure they could withstand lockdown disruptions or capitalize on opportunities to expand, Peter Miller, head of equity capital markets at BMO, said in an interview.
“There were a lot of companies taking advantage of the fact that there was a window to shore up their capital bases,” he said. “They saw an environment where they could opportunistically gain market share, make acquisitions and get an upper hand on their competition by having more capital and being more nimble.”
Equity sales from precious-metals miners continued to be solid in 2020 as gold prices benefited from market volatility, Miller said. The coming year may see similar strength from miners of base metals, he said.
“As the economy opens up, as industrial activity picks up, base metals, steel, etc., are rallying, and that’s probably the next wave in the metal space to be tapping the market,” Miller said.
Next year will see a significant increase in IPOs and potentially a pickup in merger and acquisition activity, both of which will help drive equity issuance, said Sante Corona, head of equity capital markets for TD Securities. The unit of Toronto-Dominion Bank ranked fourth in 2020, with 22 issues with a total value of $2.52 billion.
For Canada, technology will be a driver of those deals, countering the decline in energy issuance over the past few years, Corona said in an interview.
“Canada has a great technology ecosystem, with many high-quality growth companies,” he said. “Many of these companies are now considering going public, which is going to generate a lot of activity next year.”
Canaccord Genuity Group Inc. Chief Executive Officer Dan Daviau said it’s harder to predict the pace of next year’s secondary and follow-on activity because those deals have shorter lead times than other types of transactions, but he expects the pace of sales to slow somewhat. Fewer companies will be seeking the “uncertainty financing” that characterized some issuances over the past year, and deals in 2021 may be more opportunistic, he said.
Canaccord handled 116 equity issuances in 2020, the most on the league table. The $2.9 billion value of those deals gave the bank a third-place ranking for the year.
Broader market conditions -- including rock-bottom interest rates that make equity markets the only option for investors seeking returns -- are likely to create an environment receptive to equity sales, Daviau said in an interview.
“There is a lot of cash chasing the public equities market,” he said. “So we’re expecting a relatively strong market.”