Canadians urged to take risks as equity deals hit 23-year low

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Investment bankers are urging Toronto-listed companies to buy a business or raise some money as deal volumes in Canada have fallen to their lowest levels in 23 years.

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Equity and equity-linked offerings in Canada fell for the third straight year to hit their lowest point since 2001, according to league tables compiled by Bloomberg. There were 236 deals in 2024, raising $17.2 billion, compared with $19.8 billion in 2023.

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The activity stands in sharp contrast to the United States, where such offerings have climbed for the third straight year, data compiled by Bloomberg show.

“We need corporate Canada to become greater risk takers,” said Peter Miller, head of equity capital markets at Bank of Montreal (BMO) Capital Markets in Toronto. “We just need corporate Canada to, you know, want to take some risks, strap on some capital projects and do more mergers and acquisitions to fuel growth.”

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Miller said that while the number of deals dropped in 2024, the proportion of so-called clean deals rose, indicating investors have appetite for more. The problem is not demand but supply, he said.

In a clean deal, banks are able to smoothly sell securities of a transaction they underwrote, whereas in a hung deal they may need to offer deeper discounts or risk being stuck with unsold inventory.

“I think that every deal that we’ve done this year has been a green shoot,” said Nitin Babbar, Royal Bank of Canada (RBC) Capital Markets global co-head of equity capital markets, adding that investors are looking to buy into stock offerings for companies looking to grow. “Every deal that’s come has been very, very well received.”

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RBC Capital Markets topped Canadian equity and equity-linked league tables this year with mandates to raised $2.8 billion for companies. BMO Capital Markets wasn’t far behind, helping raise $2.7 billion for firms.

RBC and BMO have dominated the rankings for five straight years — one of the two banks have finished top of the table every year since 2019. This year, those two banks accounted for 34 per cent of the total offerings.

Miller pointed to two bright spots in the Canadian equity offerings market this year. There was a sharp uptick in the number of mining companies raising equity capital. And there was — after a nearly 18-month dry spell — an initial public offering on the Toronto Stock Exchange. Groupe Dynamite Inc. raised $300 million in a November deal that valued the firm at $2.3 billion.

There is also some hope that lower capital costs will spur activity in Canada, where the central bank has cut interest rates five times this year and been more aggressive in easing monetary policy than the US.

“I think we’re sitting in an environment where rates have come down materially,” RBC’s Babbar said. “The cost of capital, as a result, is lower and what we’re seeing is more growth.”

Bloomberg.com

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