The number and value of initial public offerings (IPOs) in Canada fell dramatically in the third quarter (Q3) of 2012 compared with the corresponding period a year ago, with unpredictable markets forcing potential new issuers to sit on the sidelines.

In fact, only seven new issues totalling $271 million were recorded on all Canadian stock exchanges in Q3, a PricewaterhouseCoopers LLP (PwC) survey found. That’s less than half the $537 million from 20 new issues on all Canadian stock exchanges in Q3 2011. However, the 2011 result was boosted by one large IPO on the Toronto Stock Exchange (TSX) with a value of $212 million.

Despite the drop in IPO activity, there are some new issues loitering in the wings, waiting for the right time to début, the PwC survey revealed, which suggests a burst of fourth-quarter activity that “could yet redeem a lacklustre 2012.”

Dean Braunsteiner, PwC’s national IPO services leader, notes that worries about the economic crisis in Europe and the stagnant U.S. economic recovery have acted as a brake on the Canadian market for IPOs: “The markets were so volatile that companies that were looking to go public found it quite difficult to price anything because the markets were up and down. It just wasn’t the environment [to go public].”

A decline in commodities prices for much of the year also has depressed issues by oil and gas and mining firms, Braunsteiner adds: “In September, you did see a rebound on some commodities prices. Gold has been up, so that has kind of restarted some interest. And we are hearing that some of the expected IPOs are in the mining space.”

It has been a lacklustre year in general for new issuers. For the nine months ended Sept. 30, there were 39 IPOs on Canadian exchanges with a total value of $441 million. Most of the activity, 30 IPOs, occurred on the smaller TSX Venture Exchange; but three large IPOs, worth $397 million combined, were launched on the TSX.

The first nine months of 2011 saw the successful introduction of 54 new equities issues boasting a total value of $1.9 billion. Activity on the TSX specifically was heavy, with 14 new issues worth $1.7 billion.

“The bright spot is that some of the [IPOs] that did go through this year have sort of diversified the Canadian IPO market,” Braunsteiner says. “You have seen some real estate investment trusts [REITs] that have done some IPOs, and you also have some renewable-energy companies looking to do some IPOs in the fourth quarter.

“There is cautious optimism that something may change in the fourth quarter,” he adds, “[but] I am not sure how much can happen before the end of the year. Hopefully, it bodes well for 2013.”

The list of IPOs sitting on the sidelines include a group dominated by mining companies, REITs and green-energy companies, Braunsteiner says: “It could make for what I would call a ‘respectable’ year. It wouldn’t be brilliant, and it wouldn’t be comparable to some of the blockbuster years that we have seen previously. But [these IPOs waiting in the wings] are enough of a size to bring it up to not quite a normal level of activity; it would be a good way to end the year.”

© 2012 Investment Executive. All rights reserved.