Tips for Navigating Your Listing Options
Once a company decides to go public, many key decisions follow as you enter the preparation phase – the question of which market to list on and what form the listing should take become paramount. Theseare critical questions, as the requirements and advantages of each can have a significant impact on post-IPO operations and opportunities. To ensure you select the market and form of listing that’s best for your company, there are a number of key factors to consider in evaluating your options.
Off to market
Canadian companies going public often find themselves having to decide between two primary markets – Canada versus the U.S. For the majority of the companies, which tend to be smaller in size than their U.S. counterparts, Canada is generally the first choice; though larger, higher revenue companies might consider the U.S. The potential for money raised maybe less in Canada, but smaller companies experience certain advantages from listing in Canada. This begins with a less costly, less complex process to file your prospectus, close the overall process (and actually get your money) and become a functioning public entity more quickly.
Moreover, Canada generally supports IPOs from companies with higher leverage ratios (i.e., more debt); and once public, ongoing compliance can be simpler – for example, there is no requirement for auditor certification of internal controls, and the cost of non-compliance incidents is generally less dramatic.On the U.S. side, a listing company can be in the same market as target investors and competitors, and sometimes customers as well – sometimes these can be prohibitive factors in Canada. The U.S. also offers a larger, more diverse overall investment base, generally more sophisticated investors, wider market exposure and increased M&A opportunities. Nonetheless, entry into the U.S. market remains complicated, including complex tax considerations and a greater risk of litigation.
While markets in the Canada or U.S. have been the main choice of Canadian companies, there also exists the option of listing on the AIM market of the London Stock Exchange, which provides growing companies with access to European capital markets. It is, however, generally less liquid, and the listing company may be largely unknown to potential European investors.
Choosing the right form
Once you select a market, you need to carefully consider what form your initial listing should take. Frequently, companies take the straight IPO route, listing shares on the exchange of their choice for the first time. In the U.S., those exchanges would generally be the NYSE (usually larger companies), NASDAQ (technology companies) or the NYSE MKT (small-cap or younger high-growth companies).
In Canada, the TSX or the TSX Venture Exchange is designed for small, emerging companies seeking capital – are the most likely choices for an IPO. The TMX Group that owns and operates both provides a specific program for TSX Venture companies looking to graduate to the TSX.
As an alternative to a traditional IPO, companies that list on the TSX Venture Exchange have the option to go public through a Capital Pool Corporation (“CPC”). A CPC is a public shell company through which seasoned executives or directors can raise investment money for up to two years – using their own experience and seed money as a draw – after which they must invest in a venture that is then owned by the CPC. The CPC process, like other Canadian options, is not overly onerous, but companies considering it should remember that the venture market is typically less liquid and may not provide the desired exposure that a company might be seeking.
Another listing option is an RTO, or reverse takeover, where a private company purchases an already-publicly listed company. This sometimes speeds up time-to-market and can be a good option when general investment activity has slowed.
How do you decide?
There are many options for markets and form of taking your company public. Consider all the options, consult with your advisers and decide based on your company’s unique set of circumstances, including your company’s vision and short- and long-term strategic plans, type of offering, related costs, timelines and what you believe is right for your company.
Taking your company public is an exciting and challenging process. To learn more about your IPO options, visit www.kpmg.ca/ipo to download our Guide to Going Public or our U.S. companion guide entitled Embarking on the IPO Journey in the United States.