VANCOUVER — Only one innovation-economy firm joined the Toronto Stock Exchange via an initial public offering in the second quarter of the year, according to data from TMX Group, as the overall number of IPOs on the exchange dropped by nearly 63 per cent compared to a year ago.

Quebec-based firm Bausch Health’s subsidiary Bausch + Lomb was the sole IPO from the tech, cleantech and life-sciences sectors on the TSX. The company, known for its contact lenses, also listed on the New York Stock Exchange. It raised about $812 million, with shares priced lower than it initially expected.

That comes after a year with a breakneck pace of IPO activity on the TSX. Seven companies from the innovation economy held IPOs in the second quarter of 2021. These included Vancouver-based Thinkific, which hit a roughly $1-billion valuation in its debut; Toronto-based information-tech firm Softchoice; Canadarm-maker MDA; Waterloo-based Magnet Forensics; and Toronto-based digital-media company VerticalScope.

A global downturn

“Markets are obviously a little bit different than they were a year ago,” said Dani Lipkin, director of global business development for the Toronto Stock Exchange and TSX Venture Exchange. “And this isn’t a reflection on the Canadian market but still reflects what’s going on globally.”

The conditions that prompted an IPO slowdown in the first quarter—IPOs on the TSX dropped roughly 38 per cent in the first three months of the year—have escalated. The war in Ukraine continues, creating an energy crisis. Inflation recorded the biggest increase since 1983 in May. Meanwhile, the Bank of Canada raised the key interest rate a half-point in March and surprised with a full percentage-point hike earlier in July.

On the TSX, those conditions have translated to investor uncertainty with only 49 IPOs by the end of June 2022, down about 48 per cent from 95 IPOs in the first six months of 2021. The offerings raised nearly 74 per cent fewer funds in 2022 than last year with about $1.9 billion raised compared to about $7.2 billion.

It’s a similar trend around the world. In the second quarter, global IPOs fell by 54 per cent and raised 65 per cent fewer funds, according to the professional-services firm Ernst & Young. In the first half of the year, global IPOs dropped by 46 per cent and raised 58 per cent fewer funds.

Some bright spots

Only three innovation-economy firms that held IPOs since 2021 now trade above their initial offering price.

The biggest gainer is Softchoice, up about 13 per cent from its IPO at the end of the second quarter. In March, the IT firm raised its quarterly dividend and outlook, with CEO Vince De Palma saying the company is “entering 2022 with significant momentum and in a sound financial position.” Shares rose on the positive earnings report and did so again in May when Softchoice reported a first-quarter net profit and a “strong financial condition” with $189 million in cash and $275 million from a revolving credit facility.

Shares of Magnet Forensics and Vancouver-based Telus spinoff Telus International also traded above their respective IPO prices. Magnet ended the second quarter up two per cent and Telus International had gained one per cent.

All three firms are profitable, said Thanos Moschopoulos, managing director of equity research and technology with BMO Capital Markets. Telus International reported a net income of $34 million in its latest quarter and while Magnet reported a net loss of $900,000 in its most recent quarter, it posted positive adjusted earnings before income, taxes, depreciation and amortization at $2.4 million.

“That’s another aspect where investors kind of get more cautious in a downturn,” Moschopoulos said. “Because if you’re not profitable, then the concern becomes, ‘OK, do you have enough runway? At what point might you need to raise additional financing? What does the market look like at some point in the future when that’ll have to happen?’”

Poor performance

The majority of innovation-economy firms that held IPOs since 2021 are trading below their initial offering prices. The sole innovation-economy issuer in 2022 so far is no exception. Bausch + Lomb, which listed May 9, closed the second quarter down roughly 15 per cent at $19.84 a share.

Economic uncertainty tends to hurt growth stocks—such as those of tech firms, which are predicated on future expectations—more so than value stocks, said Moschopoulos. “All that kind of stuff becomes a lot harder to forecast and to get confidence around when there’s a lot of moving parts from a macro perspective.”

Twenty-three innovation economy firms were trading at a loss to their IPO prices and more firms experienced steeper drops than in the previous quarter. In the first quarter of the year, two firms—Winnipeg-based Farmers Edge and Burnaby, B.C.-based Loop Energy—shed about 81 per cent, and three—Eupraxia, MCI Onehealth and Thinkific—lost more than 70 per cent.

By the end of the second quarter, two firms’ shares lost 90 per cent or more of their value. HempFusion Wellness, a manufacturer of CBD products, fell by 95 per cent, while Loop Energy dropped by 90 per cent. Five fell by 80 per cent or more: Farmers Edge by 89 per cent, LifeSpeak by 88 per cent, Thinkific and Eupraxia by 87 per cent, and Dialogue Health by 80 per cent. Two more shed more than 70 per cent of their value, with MCI Onehealth falling 74 per cent and E Automotive 73 per cent.

The rest of 2022 and beyond

The TSX and TSX Venture’s Lipkin said both exchanges continue to see “a lot of enthusiasm” from investors and entrepreneurs. Many firms are preparing to go public in the future when the timing is better, and may be planning as far as five or 10 years in advance, he said. 

“I’d say there’s a pretty robust pipeline over the coming years overall.”