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IPOs booming as Canadian companies refuse to let crisis deter them from going public

TORONTO — Shortly after the first COVID-19 lockdown measures came into effect in March 2020, Ali Khan Lalani found himself in a grocery store aisle in a vain search for frozen pizza.

“The grocery store owner said, ‘I can’t keep them on the shelf.’ There was a two pizza limit per customer and there were zero,” recalled the owner of Toronto’s General Assembly pizzeria, who admits to always having at least two frozen pizzas on hand for his daughter or next Netflix binge session.

“I thought to myself, ‘this is the moment that General Assembly is going to figure out how to make a frozen pizza.’”

Within a year, he had built a pizza subscription service, making 2,000 pies daily and delivering them to doorsteps across the Greater Toronto Area.

Lalani thought it was time to go public — a move dozens of other Canadian companies have considered or undertaken, even as the pandemic threatened business models and pushed many toward bankruptcy.

As of this April, the TMX Group said 25 companies on the Toronto Stock Exchange and the TSX Venture Exchange held initial public offerings in 2021. That’s up from 17 throughout all of 2020 and 18 in 2019.

TMX also counted 158 new listings on the exchanges as of April, while all of last year had 300 and 2019 saw 273.

Nuvei Corp., Well Health Technologies Inc., Dialogue Health Technologies Inc., Magnet Forensics Inc. and Boat Rocker Media Inc. were among the companies who undertook IPOs and listed.

Andrey Golubov, an assistant professor of finance at the University of Toronto, believes the rush of IPOs, which he has similarly noticed in the U.S. and the U.K., stems from a surge in demand some companies saw during the pandemic and low interest rates helping investors pour more cash into companies.

But he believes the spike seen this year is more of a blip than a long-term pattern because the number of IPOs has been falling since the dot-com bubble, when a rapid rise in technology stock valuations in the late 1990s ended in failure after businesses didn’t live up to expectations.

“I don’t think we can interpret this recent resurgence as any sign of Canada being particularly welcoming to IPOs or the tech scene becoming more vibrant,” he said.

“For some companies it’s just the right time to raise capital because of what they do. For others, it’s very rich valuations that they see and want to capitalize on.”

Lalani was keen on being part of the rush because the pandemic proved to him how resilient his company was and how much room for growth it had.

He estimates the North American market for frozen pizza is worth at least $17 billion and even if General Assembly snags one per cent, that’s still a $175-million business. The U.S. expansion he’s eyeing would boost that share even higher.

Lalani settled on an IPO because he figured “we’re going to need a lot more capital later to keep scaling up to get our slice of the pie.”

General Assembly held its IPO on June 3, pricing more than 22.3 million shares at $1.73 on the TSXV. They closed at 94 cents that day and have since fallen to around 68 cents.

Months prior, securities lawyer-turned entrepreneur Greg Smith took his Vancouver-based education technology company Thinkific Labs Inc. public.

He wanted to go public because the company saw a surge in customers and opportunities as education moved online during the pandemic and because tech valuations were spiking.

“There’s a ton of money available for both venture capital funding and IPOs, and so I think that opened the floodgates,” Smith said.

But he admits there were some frights.

“In the middle of Thinkific’s IPO, we saw quite a drop in the TSX and in the markets and so there was a point there where we questioned whether we were going to be able to go through and do it,” he recalled.

The market eventually bounced back and Thinkific debuted on the TSX in April with a $160 million IPO and a valuation of more than $1 billion, giving it the much-coveted “unicorn” status. The company sold about 12.3 million shares at $13 each and they’ve since risen to about $18.

Smith celebrated with small video celebrations before Rhino Ventures, one of the company’s investors, showed up on his doorstep with a float decked out in golden balloons, champagne bottles, plenty of glitter and a replica of the podium companies typically mark their TSX debut at.

“They loaded us onto the float and drove us around my neighbourhood… which was actually quite a bit of fun,” Smith said. “Some (neighbours) clapped. Some waved hi.”

While there was no bedazzled float for Toronto’s MedNow, the virtual pharmacy and telemedicine company was just as thrilled about its $37-million IPO made up of 5.5 million shares priced at $6.75 on the TSXV in March. Shares have since declined to about $1.80 each.

Co-founder Karim Nassar didn’t hesitate to go public, even in a crisis, because the pandemic shifted interest and capital toward medical and health businesses that have long been starved for attention.

“The industry has been so wanting and highly nascent when it comes to technological advancements and a lot of times people say health care is still a bit in the Dark Ages when it comes to tech,” said Nassar.

“We would have probably still went ahead with the IPO, if the pandemic hadn’t hit… but there was clearly such an incredible appetite, it would have been a bit of a missed opportunity to sit out.”