Canada IPO market trades commodities for tech as valuations climb

By John Tilak

TORONTO (Reuters) - Technology companies look set to supplant energy and mining firms as the driver of Canadian initial public offerings this year as global optimism about tech startups boosts valuations and spurs early investors to cash out.

The anticipated surge in capital-raising by tech companies would provide a much-needed boost to the commodity-heavy Canadian equity market, which has been hit hard by plunging oil and metal prices.

Soaring venture-capital investment and healthy technology spending are seen as fueling the revival of Canadian tech IPOs.

"In the next 12 to 24 months, you’re going to finally see the most significant volume of Canadian tech IPOs you’ve seen in the past decade, if not ever," said John Ruffolo, chief executive of OMERS Ventures, one of Canada’s top venture capital players.

PointClickCare, whose software supports the senior care market, and ecommerce software maker Shopify could go public as early as the spring, possibly with valuations over $1 billion, said three sources familiar with the matter who declined to be named because details are not yet public.

Property information provider Real Matters and online lender Mogo are also preparing for IPOs this year, they said, adding that HootSuite and Desire2Learn have deferred such plans to next year.

HootSuite, seen by many as the most valuable of these startups, runs a popular social media management tool. Chief Executive Ryan Holmes declined to comment on IPO timing, but said HootSuite is "building the foundations and best practices of a public company, and has a lot of interest in an offering".

Shopify, Mogo and BuildDirect declined to comment. PointClickCare, Desire2Learn and Real Matters did not immediately respond to requests for comment.

Entrepreneur Roger Hardy said recently he plans to take his online shoe retailer, Shoes.com Technologies, public in 2015.

BuildDirect, Vision Critical, Wattpad, Chango, Shop.ca and Verafin are other startups that have raised significant funding and are being watched closely by investors.

The Canadian technology sector had just three initial public offerings in 2014 worth C$193 million ($152.24 million), compared with 12 worth C$1.4 billion in 2006, according to Thomson Reuters data.

Strong demand for recent U.S. tech IPOs, including that of Alibaba Group Holding Ltd, is likely to boost the Canadian sector, said Dean Braunsteiner, national IPO services leader at PwC.

Recent Canadian successes are also a driving force. Since going public last year, shares of software-maker Kinaxis have gained 90 percent.

"The fact that many public technology companies are trading at attractive valuations is another positive factor for private tech firms, as they are able to go public at more appealing valuations," said Mike Lauzon, managing director of technology, media and telecommunications investment banking at CIBC.

Lauzon noted ready access to private capital has given startups more flexibility on IPO timing.

Canadian venture capital investments are at their highest level since 2002, according to Thomson Reuters data.

Some fund managers caution that high valuations for startups may limit the upside for IPO investors.

“There’s ample reason for investors to be nervous,” said John Stephenson, president of Stephenson & Co Capital Management. “You’ve got a market overall that’s richly valued, you’ve got a sector that’s richly valued, and you’ve got declining prospects for economic growth.”

The boom has also revived memories of dot.com era, when investors paid huge valuations for technology companies that later crashed.

But bankers say current IPO candidates are often already profitable.

"They are clean, much more advanced, have greater scale and have larger market opportunities ahead of them," said David Wismer, managing director at BMO Capital Markets.

($1=$1.27 Canadian)

(Editing by Jeffrey Hodgson and Peter Galloway)