IPO drought? Cleantech companies flood Canadian markets

Venture capitalists are holding tightly onto their investment dollars in the United States because of a lack of exit options, but some cleantech companies are turning to Canada to find capital (see More deals, fewer dollars for cleantech in '09?).

The most recent cleantech company to ring the bell beginning market trading on the Toronto Stock Exchange Venture Exchange was Welland, Ontario-based CRS Electronics (TSXV:LED). The company, which specializes in engineering, designing and manufacturing LED lighting, started trading May 27, as one of three new cleantech listings on the exchange in 2009.

The TMX Group, which owns and operates the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV), added 30 new listings to its cleantech portfolio of companies in 2007-08, and three in 2009.

Cleantech IPOs across the globe are at an all-time low, with just three in China and one in Switzerland in the first quarter of 2009 (see Cleantech investment drops but stimulus funds soar in 1Q09). However, TSX’s new Senior Vice President Ungad Chadda said there are more than 11 companies in the application stages for the Canadian exchanges.

“This is a sector that has been a relative bright spot even through the downtown,” he told the Cleantech Group.

Between the two Canadian exchanges, there are more than 114 cleantech businesses of the 3,848 listed companies. Eight of the TSXV companies have graduated to the TSX. These cleantech companies raised $2 billion in equity from 2007-08, and had $15 billion in shares traded in 2008. The average financing transaction on the TSX was $39 million, and $3.8 million on the TSXV. The sectors represented on the exchanges include: renewable power generation; technology and manufacturing; waste and water treatment; transportation; energy efficiency and agriculture.

Chadda took over his new post May 26 overseeing the TSX listings business, previously serving as vice president of business development and strategy for TSX and TSXV. Chadda is a chartered accountant who joined the stock exchange in 1997 and has over 12 years of experience in the listings business.

Chadda shared some of the details and success stories of the cleantech sector on the Canadian exchanges with the Cleantech Group:

What is the TMX Group, and what does it have available for cleantech companies?

TMX Group offers a unique dual platform exchange group that assists small companies in attracting capital, growing and becoming established, listed companies. The TSXV acts as the "farm team" if you will. TSXV mentors and assists companies by readying them for graduation to the TSX.

It is notable that we currently have multiple applications under review for listing, not that that's a guarantee that they will be accepted to list on the exchange. Nevertheless, it is a good sign about the health of the sector and the compelling nature of our value proposition.

What does your role entail, and how do you work with cleantech companies?

I’m responsible for all aspects of the listings business at TSX with particular emphasis on business development strategies aimed at expanding the TSX listings base beyond Canada and into emerging sectors such as cleantech.

Through our business development and listings teams we work with industry groups, investment banking and legal advisers and others to touch the cleantech community so that they are aware of their financing and growth options on either of the TMX equity exchanges.

Why are the exchanges a good place for exits or raising funding right now, and how much are you seeing being raised?

TSXV is not an exit strategy. Rather it provides an alternate pathway to raise growth capital to enable young companies looking to execute on their plans, and grow their business at an aggressive rate. While growth is the biggest benefit of the TSXV route, it can also offer some liquidity for founders and principals in the early stages.

Over the past two years, during difficult market conditions, cleantech companies have raised over $2.5 billion on our market. These customers have seen the value in the cleantech franchise that we have created and have done their homework, and have often been counseled by their financial advisers on the competitive if not superior valuation multiples that are afforded to listed companies on our market.

TSX and TSXV have a unique infrastructure of retail investors and investment banks that by U.S. standards would be boutique investment banks. These two factors combine to create a very vibrant financial ecosystem for small companies in that they provide liquidity and analyst coverage to companies with market capitalizations that are less than $50 million.

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