August 19, 2022


World for Home.

How Bay Street hunkered down at home to raise record $500B for cash-strapped governments, firms

a man wearing a suit and tie: Trevor Gardner, head, Canadian investment banking, at RBC Capital Markets.

© Provided by Financial Post
Trevor Gardner, head, Canadian investment banking, at RBC Capital Markets.


Dealmaking may forever be separated into two distinct periods: before COVID-19’s arrival, and after.

Prior to the coronavirus pandemic, selling an initial public offering of a company’s shares to investors could entail booking a flight or heading down to a nice restaurant. Last year entailed far less of that, as public-health restrictions put a damper on business travel and turned some Bay Street haunts into takeout-only joints.

Many Canadian financiers were instead forced to do their work from home, with the sparkling office towers of downtown Toronto, Montreal, Vancouver and Calgary emptied out to stem the spread of the disease. Dreams of returning to the office were dashed by a second wave of COVID-19.

But what Canadian dealmakers and companies discovered last year was that, even from home, they could get the job done. And in the end, last year’s financing set a new record for Bay Street.

Approximately $528 billion in debt and equity was sold by Canadian issuers in 2020, up 31.1 per cent compared to 2019, according to Financial Post Data. The financings were spread across 1,238 deals, a 21.7 per cent improvement over 2019. The data includes all the financing firms did on behalf of Canadian-incorporated issuers via stock offerings and corporate and government debt deals.

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The massive 2020 may have ensured that some pandemic-era habits picked up by dealmakers could stick around permanently. After all, why hop on a plane when you can just hop on a Zoom call? The future of dealmaking may become more of a “hybrid” model, particularly when it comes to selling IPOs, says Trevor Gardner, head, Canadian investment banking, at RBC Capital Markets.

But those who took part in last year’s record-breaking financing remember a lot of twists and turns to get to that point. Moreover, uncertainty has yet to dissipate entirely, setting up this year as one full of potential, but also one full of potential pitfalls that will have to be watched for closely.

“On one hand, it’s flown by,” Gardner said. “On the other hand, the year feels like three or four years packed into one, because it feels like we’ve taken a bunch of different market cycles and dynamics that you typically see take quarters and packed each of them into weeks or months.”

The coronavirus pandemic caused the world to screech to a halt last spring, including the world of share sales and bond offerings. On March 24, the Canadian Bond Investors’ Association, which represents some of the biggest fixed-income institutional investors in the country, warned then-Bank of Canada Governor Stephen Poloz that the provincial, municipal and corporate bond markets “have essentially seized up.”

That changed, however, as the Bank of Canada slashed its key interest rate down to 0.25 per cent and began a massive bond-buying campaign, joining other policymakers in helping to ensure the stability of the financial system. Companies and governments rushed to take advantage of ultra-low borrowing costs. And when the rebound came, issuers then sought to take advantage of rising stock prices. Investors rolled with the punches as well, seeking refuge in safe havens such as gold, but also rushing towards pandemic plays such as e-commerce firms.

A boom last year in debt issuance began with borrowers trying to ensure they had enough cash to make it through the earlier and more uncertain days of the pandemic, said Sean St. John, managing director and head of fixed income at National Bank Financial.

Issuers then became keen on taking advantage of the credit climate, such as by refinancing longer-term obligations. Companies issued approximately $246.6 billion in debt across 324 deals in 2020, an increase of 18.2 per cent and 17 per cent over a year earlier.


Governments were also suddenly left facing the double-whammy of a sudden drop in tax revenue and the equally sudden need to start financing a swath of support programs for people and businesses. As a result, 2020 saw $243.4 billion in government debt offered across 352 deals, up 51 per cent and 28.9 per cent.

There were plenty of buyers, St. John noted. Investors had large piles of cash sitting around earning next to nothing; a more attractive alternative awaited them in the fixed-income market.

“Given what was going on, I think everybody would consider it a very good year,” St. John said.

There was also a strong year of stock offerings that was achieved despite a “void” that set in along with the pandemic, said Peter Miller, global co-head of equity capital markets at BMO Capital Markets. In 2020, there were 562 deals totalling nearly $38 billion in equity that was sold by issuers, with the former up 20.3 per cent and the latter up by 15.7 per cent compared to a year earlier.

There were a few factors that more than helped make up for the pandemic gap, according to Miller. One was initial public offerings, such as the whopping $1.89-billion IPO pulled off in early March by waste-management company GFL Environmental Inc., and the US$833-million debut of payment-processor Nuvei Corp. in September.

All told, there were 43 operating-company IPOs worth almost $5.4 billion during 2020, according to Financial Post Data. Although the deal count was down by 10.4 per cent compared to the previous year, the amount of money generated by the offerings exploded by 446.4 per cent.

Another factor that helped lift equity sales were certain industries being viewed more favourably during the pandemic, such as technology. So, while energy and mining have traditionally been big drivers of stock offerings in Canada, this year the markets were able to capitalize on the demand for businesses that catered to the stay-at-home crowd.

“The economy and the capital markets have pivoted towards the new realities of, and then filled in the void for, how things have changed in Canada,” Miller said.

RBC Capital Markets was the leading financier for 2020, according to FP Data methodology, with the firm acting as bookrunner on 262 deals amounting to $78.76 billion in debt and equity sold. Coming second was TD Securities Inc., with 182 deals and $62.17 billion raised, followed by National Bank Financial, which was in on 169 deals totalling $56.50 billion.

Scotia Capital Inc. finished fourth with 193 deals and $53.11 billion in debt and equity, and closing out the top five financiers was BMO Capital Markets with 207 deals raising $48.3 billion.

CIBC World Markets Inc. was sixth in the Post’s league table, at 190 deals and $45.63 billion. J.P. Morgan Securities was the first non-Canadian firm on the list, finishing seventh with 72 deals and $23.49 billion.

a man sitting in front of a building:  Peter Miller, global co-head of equity capital markets at BMO Capital Markets.

© Peter J. Thompson/National Post
Peter Miller, global co-head of equity capital markets at BMO Capital Markets.

Law firms were busy as well during 2020, with the number of transactions in which there was Canadian legal counsel to the issuer increasing 14.1 per cent over 2019, to 510. The dollar amount for those deals rose as well, jumping 24.2 per cent to $149.9 billion.

Deals in which there was Canadian legal counsel to the underwriter climbed 8.1 per cent to 442, with the dollar value increasing 16.3 per cent to $97.6 billion.

Osler, Hoskin & Harcourt LLP was the top Canadian legal counsel to issuers, notching 41 deals worth $29 billion. McCarthy Tetrault LLP was the leader on the underwriter side, acting on 42 transactions totalling $22.28 billion.

COVID-19’s arrival on the scene immediately cast a shadow over M&A activity, disrupting what was expected to be a big year for Canadian corporate combinations. A purchase that was considered feasible pre-pandemic suddenly had to be given another look given the new state of play.

As such, there were 1,375 mergers and acquisitions transactions worth almost $147.7 billion last year, according to FP data, down from 1,906 and approximately $258.5 billion a year earlier.

“M&A activity is allergic to uncertainty,” noted Kim Le, a partner in the mergers and acquisitions and private equity groups at Stikeman Elliott LLP. “The M&A world just collectively took a breath to focus on what deals were going to be saved, versus what were going to be originated around that time.”

However, the outlook started to improve in the late summer and early fall, Le said.

a woman wearing glasses:  Kim Le, a partner in the mergers and acquisitions and private equity groups at Stikeman Elliott LLP.

© Courtesy Stikeman Elliott LLP
Kim Le, a partner in the mergers and acquisitions and private equity groups at Stikeman Elliott LLP.

The vast amount of capital that pension funds and private-equity firms had been sitting on began to be put to work. Companies felt a bit more certain about the world they were living in, helped by the steady drumbeat of good news about vaccines. Deals started to grow in size, such as Intact Financial Corp.’s joint acquisition of British insurer RSA Insurance Group Plc for $12.3 billion.

“We saw a real ramp-up towards the end of the year in dealmaking,” said Le, who added that the “secret sauce” for M&A is still there.

Current conditions do indeed look pretty similar to those that allowed for such a strong 2020. In particular, interest rates remain low, stock prices have been rising, private capital is aplenty and issuers are anxious about missing an opportunity.

That said, there are a few unknowns still floating around for 2021. First and foremost is COVID-19, which is not yet beaten, and has even mutated, providing another concern for forecasters to watch. There is also the possibility of a federal election in Canada and a new political direction expected from the United States and its new president Joe Biden.

Another “elephant in the room” for the coming year will be inflation, St. John said. Canada’s consumer price index rose by 0.7 per cent in December compared to a year earlier, but that slight deceleration was chalked up to a drop in air transport costs and a weaker increase in food expenses.

A greater rate of inflation could put pressure on central banks to raise interest rates or buy fewer bonds, which may lead to borrowing costs increasing and dent the price of debt that’s already been issued. It could also suck money away from the equity markets and towards higher-yielding bonds.

The Bank of Canada has said it will keep its key interest rate at just 0.25 per cent until its two-per-cent inflation target is “sustainably achieved,” which it doesn’t see happening until 2023. However, the central bank did say that it could adjust its amount of bond-buying depending on how the economic recovery shakes out.

“Everywhere you go it seems prices are going up,” St. John said. “I’m surprised that the numbers are what they are right now and I would not be surprised if there’s upside shock.”

But public firms are going to raise funds when they need it, BMO’s Miller said, and there are “a large number of companies” that are eyeing potential IPOs to take advantage of current market conditions. There is demand from investors as well, and some firms may be growing at such a clip that they need more capital.

“So those companies, for sure, there’s a sense of urgency,” Miller said. “Not only that the market is open, valuations are attractive, but everybody gets a sense that there’s potential congestion and wishes to get out ahead of that.”

And while big companies may have helped lead the recovery, the market for small and medium-sized company IPOs is “quite robust,” RBC’s Gardner said. Market interest is broadening to include sectors other than tech and health care, he added.

There is still plenty of activity expected on the debt side as well, according to National Bank’s St. John.

Canadian banks have begun issuing what is known as a “limited recourse capital note,” a tax-friendly offering that is also treated like equity for regulatory purposes. St. John said there is a “significant amount” of LRCN issuance poised to happen.

More green-bond sales are expected as well, with environmental, social and governance factors becoming more prized by investors. However, St. John said the energy sector has also seen a recent pick-up in activity, as oil prices have edged higher following a collapse in the spring.

Cash-heavy institutional investors may still be looking for somewhere to go, and the pandemic has created a legion of day traders who have become a force unto themselves in the market. Punters are still buying what Bay Street is selling — and that may continue for the foreseeable future, whatever that may look like for dealmakers.

For some, it could mean some pandemic-era practices stick around. When it came to marketing IPOs in the past, there were “long, torturous for some, enjoyable for others, road shows,” RBC’s Gardner said. And yet, in 2020, Bay Street managed to handle a record amount of financing virtually.

“I think what this environment has caused us to realize is, in-person still has tremendous value,” Gardner said. “But it doesn’t always need to be that way.”

Financial Post

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