For private companies seeking to take the public-company plunge, this has been an opportunistic time. The S&P 500 has been up 18 percent this year and the Nasdaq up 15 percent amid a race for new listings on U.S. exchanges. Business owners looking to bypass the red tape in hiring underwriters and touring Wall Street are turning to special-purpose-acquisition companies (SPACs) as a convenient going-public vehicle.
Canadian financial advisers are pointing to another way for American companies to list shares. The Toronto Stock Exchange opened a Chicago office late in 2019 and has been actively recruiting potential listings from around the area through local representative George Khalife, Toronto’s vice-president for the Midwest. There are currently 114 U.S.-based companies listed on the TMX exchange, as it’s known, and Khalife figures to build on that number significantly in the next year.
Historically Toronto has been known for its mining and energy company listings, such as Suncor and Imperial Oil, along with big banks such as Canadian Imperial Bank of Commerce (a sponsor of this column) and Bank of Montreal. But the parade of recent new listings has been concentrated in innovation and technology sectors.
Such software giants as Spotify and Constellation got their start trading on TMX. “We’ve seen a number of billion-dollar companies emerge in this sector,” Khalife says. “Mining is still an important presence on the exchange, but innovation is where the growth is coming. Companies are realizing they can go public at an earlier point in Canada rather than waiting to build more sales first before being accepted on a U.S. exchange.”
There are 1,711 companies currently listed on the main Toronto exchange. There is an offshoot for younger firms called TSX Venture, actually based in Calgary where 1,673 companies are listed. Decades ago stock trading in Canada was notorious for its wild-west Vancouver exchange, which welcomed American companies with dodgy financials to list when they couldn’t find sponsors in the U.S. But Vancouver is long gone, and Venture is stiffly bureaucratic by comparison.
What are the advantages of listing in Canada? For one, there is less competition for attention. “Take a tech company public in Canada with a $1 billion valuation and you’ll rank among the 25 largest tech concerns in the nation,” Khalife says. “At $1 billion, in the U.S. you’d have 600 or more companies as big or bigger than you are.”
There is also a substantial difference in cost. In Canada a company going public with an anticipated market value of $100 million would typically be able to get the legal and accounting and regulatory fees capped at somewhere between $100,000 and $500,000, according to Khalife (that’s in Canadian dollars, pegged at $1C to 78 cents American). In the U.S., the range for such preparation is likely to run from $1.5 to $4 million. “The U.S. has a heavier regulatory environment,” Khalife explains. “In Canada our listing requirements are more flexible.”
The Toronto listing has worked well for Chicago-based Venzee Technologies, which develops software that translates the descriptions for all kinds of consumer products coming from manufacturers to promotional copy ready for retailers to use. The company got its listing on TMX Venture nearly four years ago via the Canadian version of a SPAC. It has just 25 employees and revenues under $1 million annually at this point—too small to gain a listing on any U.S. exchange. But since coming public it’s been able to raise in various offerings more than $10 million (in American dollars) to fund operations.
Venzee maintains offices in Vancouver to stay close to its accountants. John Abrams, president and CEO, notes that start-up capital from friends and family goes only so far, and Canada has no real venture capital marketplace. “But if your concept is viable you can get listed on the TMX,” Abrams says. “The requirements for getting listed on NASDAQ are massive by comparison. You need millions in revenues just as starters. TMX has suited our purposes.”
Abrams says he actually welcomes the extra diligence and regulation that comes with public-company status. He adds that he gets calls nearly every month from suitors hoping to buy out Venzee. He wants to build his company to a larger scale before that happens, but believes that his stock, even trading at 7 cents American recently, acts as a showcase to remind people what Venzee is. If it were private, the company would be invisible by comparison, he says.