TMX has overhauled its capital pool company program, with encouraging results
Author of the article:
Bloomberg News
Kevin Orland
Published Apr 12, 2021 • Last updated Apr 13, 2021 • 3 minute read
MX Group Inc. signage and stock prices are displayed on a screen in the broadcast center of the Toronto Stock Exchange (TSX) in Toronto. Photo by Pawel Dwulit/Bloomberg files As surging stock prices prompt a boom in initial public offerings, Canada’s largest stock exchange is attempting to breathe new life into a SPAC-like vehicle aimed at helping small companies go public.
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Access articles from across Canada with one account. Share your thoughts and join the conversation in the comments. Enjoy additional articles per month. Get email updates from your favourite authors. Toronto Stock Exchange operator TMX Group Ltd. has overhauled its capital pool company program, in which groups gather money from investors to form publicly traded shell corporations that later merge with private operating companies. The changes doubled the amount of capital they could raise, cut the number of public investors needed and eased residency requirements for founders.
The revamp was meant to make the vehicles, known as CPCs, more flexible and more lucrative for founders in a bid to reverse a decline in activity in recent years. The early figures are encouraging for TMX, with eight new CPCs listed in the first two months of 2021. If the pace is sustained, it would mean a 55 per cent increase in CPCs from last year.
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Article content “We have seen a marked increase in interest in the program and filings,” Loui Anastasopoulos, TMX’s president of capital formation, said in an interview. “The changes really do make the program a more attractive option for qualified boards and management teams and growth investors alike.”
The revamp will be critical to reviving an important feeder into Canada’s stock market. About half of the companies that list on the junior TSX Venture Exchange do so through a CPC, and about a third of the companies that graduate from that exchange to the senior Toronto Stock Exchange are former CPCs. Canopy Growth Corp., Canada’s largest cannabis producer by market value, was originally a CPC.
But that pipeline has slowed to a trickle in recent years. TMX listed 31 new CPCs last year, less than a third of the 95 formed in 2018. The slowdown occurred during a boom time in the equity capital markets: Special-purpose acquisition companies, which share many features with CPCs, have gone from relative obscurity to dizzying popularity, raising about US$84.5 billion globally last year, more than six times their 2018 total.
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Article content TMX executives acknowledge the similarities between CPCs and SPACs, but they say the two are different and the changes weren’t related to the SPAC boom. Aside from their much smaller size, capital pool companies differ from SPACs in practice in that CPC founders typically take a hands-off approach after the qualifying transaction is complete, said Tim Babcock, managing director for capital formation at the TSX Venture Exchange.
Listing costs CPCs were introduced in the late 1980s and came to be used frequently by Canada’s junior miners and oil and gas drillers. After a lull in new listings around 2015, TMX began exploring ways to revitalize CPCs, Babcock said in an interview.
The main complaint from the experienced managers and executives was that the vehicles weren’t economical for them anymore, especially as the cost of operating a public company had risen, Babcock said. Changes that took effect this year — such as reducing the required number of public shareholders by 25 per cent to 150 — were aimed at giving the founders a greater piece of the upside when a CPC makes an acquisition, he said.
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Article content Grab to unveil world’s biggest SPAC merger, valued at nearly $40 billion: sources WeWork agrees to go public via $9-billion SPAC deal Blank-cheque company craze prompts BMO to bulk up SPACs banking Amateur traders flock from ‘stonks’ to SPACs, taking risk to a whole new level “We took a look at what levers might we be able to move to make that more attractive because the CPC founders are a very important group to our market,” Babcock said. To take a small company public, “you need capital-markets expertise, you need access to capital, you need legal expertise, but typically these companies don’t have very deep pockets and they can’t pay for them.”
After a long consultation with stakeholders and a regulatory review of the changes, the new system was announced in December and took effect in January. The CPC program is getting increasing interest from sectors beyond its resource roots, including financial technology and health care companies, Babcock said.
And with surging equity markets encouraging more companies to go public, the CPCs that have formed have managed to find suitable acquisition targets as well. The number of qualifying transactions by existing CPCs rose 54 per cent to 48 last year, according to TMX data.
Bloomberg.com