Among the buzz between money managers, CEOs and businessmen at the TSX Group road show, “Sarbanes Oxley” and “capital pool” seemed to be the most frequently used words. And it was a shared perception that the landmass just north of the U.S. border offers small and mid-cap companies a fountain of capital. As one gentleman told me, “Canada has appetite.”
TSX stopped at the Crescent Hotel in Dallas yesterday, as part of its worldwide tour to promote its dual-tiered system – the Toronto Stock Exchange and the Toronto Venture Exchange – and to raise awareness of the opportunities for small and mid-cap companies going public in Canada.
Kevan Cowan, president of the TSX Group, addressed all attendees as lunch was served. Market News First was able to steal a few moments of his time to find out the agenda behind the year-long tour and what the company intends to accomplish.
“Our primary goal is to raise awareness that we are a world leading exchange in terms of providing a solution for small and medium enterprises. Other exchanges don’t necessarily focus on this space – this is our sweet spot,” Cowan said. “We’re trying to provide a platform that helps the micro-cap, small-cap and mid-cap companies have an opportunity to grow.”
The TSX Venture Exchange is for early stage companies, or “junior” companies, looking for smaller financing (typically between $500,000 and $20 million). The exchange offers a mentorship program for companies who may find the process of going public daunting. After meeting market requirements, companies listed on the exchange “graduate” to the Toronto Stock Exchange. More than 24 companies have graduated to the Toronto Stock Exchange in the past five years.
The Toronto Stock Exchange gives companies access to larger investment pools, more analyst coverage and corporate governance. “Senior” companies, companies with established business and a management team with experience in the public markets, can skip the Venture and begin trading on this exchange.
Ken Manget, managing director for BMO Capital Markets said the system is ideal for smaller companies looking for investor attention and capital.
“The structure we use enables the company to use a very efficient way to access the main capital markets. In Canada we have the third largest stock exchange in North American. We’ve got some great mid-cap companies in the U.S. which couldn’t otherwise access the public markets because it would be considered too small beneath the radar screen,” Manget said in an MN1 interview. “In Canada [the companies] catch a lot of attention – they get researched, they get traded, and they get called by investment banks.”
Over 100 U.S. companies have already taken advantage of a Sarbanes Oxley-less exchange. The Sarbanes Oxley Act has drawn much criticism in the U.S. lately, particularly when the SEC met earlier this week for a hearing to discuss various SEC issues, including the Act. Without the rules and regulations enforced by the SEC here in the U.S., Manget said that once a company makes the decision to go public in Canada, the deal can be closed in about five weeks.
Cowan noted that while there may be more flexibility trading on the Canadian exchange, there is still strong governance and structure. Word of this flexibility is what drew Randy Griffin, CEO of Dallas-based Mesa Energy Corp. to the TSX Group luncheon.
Griffin said his company intends to begin trading on the Pink Sheets shortly, but wants to explore all options before making a decision. Canada’s engagement with the commodities industry makes the exchange attractive to many energy companies.
TSX Group is home to 60 percent of the world’s public mining companies, and to 50 percent of the worlds public oil and gas companies.
“[TSX] has a strong energy component; they have a lot of focus on mining. You [can] get lost in the white noise in the U.S., whereas it’s probably easier to be a bigger fish in a small pond up in Toronto. That’s one thing that attracts me to at least do some research,” Griffin said.
Many people I spoke with remarked on the advantages for smaller companies who may get looked over in the bigger markets in the U.S. Those companies not shown on the radar can get looked over, and the pool of capital in, say New York, or the U.S. in general, is smaller than in Canada.
“A small company in the U.S. is a small company. A small company in Canada is a relatively big company. It attracts a broader following than it would otherwise,” said Manget.
Gage Jull, managing director of Research Capital, agreed with Manget, referring to some companies in the U.S. as “instant orphans,” or companies who go public and are left alone with their small pool of capital, searching for ways to get shares moving and to raise additional funding.
Jull continued that the experience and knowledge of the investment bankers of the Canadian exchanges, as well as their international ties further enhances the attractiveness of the TSX Group.
“The expertise of investment bankers, in terms of financing those companies and allowing them to exploit the opportunities both domestic in the U.S. and internationally is unparalleled in any market.”
Though mining, oil and gas companies are most predominant on the TSX exchanges, industries such as technology, finance, and healthcare are becoming more common.
Northstar Healthcare Inc. (TSX: NHC) took advantage of TSX Group and Canadian investors, raising over $170 million through the oversubscribed IPO May 17, 2007.
“We knew that Canadian investors had a history of buying high-yield products,” Dr. Donald Kramer, CEO of Northstar, said in a statement. “And the Canadian dollar is very strong, so it’s a great time to form a Canadian company and raise capital.”
The line separating U.S. soil from Canadian soil is one that many companies are crossing as they look for alternatives from strict U.S. trading regulations and for ways to push themselves into the limelight of investor attention. Drawn to the hustle and bustle of flowing capital, about 3,800 companies are currently listed on the TSX Group exchanges. And, as Cecil F. Fleming, chairman of the board for Northstar said, “There’s appetite in Canada.”