Perfect storm of factors pushes IPO market toward rocky shores

TORONTO, July 3, 2008 — Battered by a perfect storm of negative influences, the market for new public offerings on Canadian equity markets fell to another record low in the second quarter of 2008, the latest PricewaterhouseCoopers (PwC) survey of Canadian equity markets has shown.

Eighteen new issues on all Canadian exchanges in the period April 1 — June 30, 2008, gathered just $466 million in new equity, down from 20 IPOs worth $555 million in the same period of 2007, the survey revealed. The second quarter of 2008 saw just seven new issues on the TSX for a value of $434 million, compared to eight IPOs worth $453 million in the same quarter of 2007.

"To put these results in context, the 2007 results were already among the lowest on record," explains Ross Sinclair, national leader of PwC's IPO and income trust services.

There were a total of 38 new issues on all exchanges in the first half of 2008, down from 41 in the same period of 2007. A total value of $614 million in the first half of this year was off almost one-third from the $855 million in the first half of 2007. The TSX saw 10 new issues in the first half of this year for a value of $547 million, down from 13 IPOs valued at $644 million during the same period last year.

At its current pace, the market will struggle to reach half the value of the slowest period of the decade, Sinclair says, when just 46 new issues worth $2.07 billion reached the market in 2001. 2005 was the best year for IPOs, when 119 new issues worth more than $6.9 billion came to market.

"The IPO market in Canada is in the centre of a perfect storm of negative factors that are pushing the market into record low territory," says Sinclair. "The extreme volatility of the market, with large swings and relatively low valuations for any company that is not in commodities or oil and gas, is just one factor. A slowdown in the US economy, continued uncertainty in credit markets, concern in the financial services sector, the disappearance of income trusts and the impact of higher oil prices have all contributed to an environment where it is hard to see any optimism."

"To complete an offering in this market, you need a really compelling story — a quality company, a strong track record, flair and growth," Sinclair adds. "The only company that brought that combination to the market in the second quarter was Sprott Inc." Sprott completed the largest IPO on the TSX during the quarter, a $200 million issue in April, 2008 which represented close to one-half of the total market for the second quarter.

While the second quarter of 2008 was an improvement over the first quarter, Sinclair sees no significant upward trend that would lift the IPO market before this fall. "Even the TSX Venture exchange, which can sometimes show some interesting trends, has little good news," he says. Just nine IPOs with a value of $30 million made it to the junior exchange in the second quarter, less than a third of the $99 million that was placed on the TSX Venture in the same period of 2007.

For more information, please visit www.pwc.com/ca/iposurveys.

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