The number of IPOs (initial public offerings) on Canadian exchanges has dipped well below last year, with technology IPOs falling the farthest from grace.
According to numbers released from PricewaterhouseCoopers LLP last week, technology and media IPOs dropped from 14 in the first half of 2000 to four this year – a change of 71 per cent. The gross value of technology IPOs fell from $17 million to $17,000 (99 per cent).
The reduction in high-tech IPOs looks particularly damning this year since stock markets were so inflated last year, says Eric Slavens, IPO services leader for PwC. “Last year we were at the tail end of the boom, so last year was a very high number (of IPOs). This year, of course, is quite a low number. The markets have just slammed shut on technology-type issues.”
According to Slavens, the IPO slump was precipitated by a significant drop in the Nasdaq last April. “That’s really when the markets hit the wall. (It applies) heavily to technology and the other sectors as well. It was really technology that was booming the market.”
Technology stock performance is a good litmus test for other markets, he added. While technology may not share a correlative relationship with other sectors, its highs and lows can drag the rest of the economy along for the ride. “It was fueling the markets and just isn’t there anymore. We’re a technology-driven economy now. So much of our economy drives off of technology, that if technology is down, it’s a major drag on the economy,” says Slavens.
Venture capital companies have also pulled back on the reins. A poor stock market means IPO candidates must sit on the shelf that much longer, says David Ferguson, managing director of Toronto-based VC VenGrowth. “The VCs either have to continue funding their companies or stop funding them and let them go,” says Ferguson. “But it really puts pressure on the VCs, because they can’t get out of their investments into the public markets and they’re sitting with them for longer. Their money is tied up and they can’t be making new investments.”
Another way for a VC to unload a start-up is to sell it to established technology player. But, says Ferguson, “larger companies who have traditionally been very acquisitive, like a Nortel or a Cisco or a JDS Uniphase, have tended to slow down or put all acquisitions on hold until they sort through some of their own challenges in this environment.”
The market will inevitably rebound, says Slavens, but he can’t be sure when. In the meantime, VenGrowth has found a silver lining to the dark cloud. Devalued start-ups are a much cheaper investment than they were last year, and the recent failure of so many dot-coms is a cautionary tale for start-ups to reduce their cash flow.