Going public: a thing of the past?

Initial public offerings and recent developments in dual-class share structures

In Canada, 2023 was a lean year for new companies embarking on initial public offerings (IPOs) on the TSX, the country’s main stock exchange. In fact, only one company, Lithium Royalty Corp., proceeded with an IPO, raising about $150 million in March 2023. More than a year later, at the end of June 2024, no new conventional[1] company has since been listed via IPO on the TSX. This is an abnormally long—even historic—period.

“The public markets are a great economic equalizer, allowing small retail investors, supported by appropriate investor protections, to participate directly in the growth of [the] economy” (Capital Markets Modernization Taskforce, 2021). Studies show that the size of a country’s capital market is positively correlated with its economic development (measured by the long-term real growth rate of GDP per capita), and that, in the case of stock markets, the relationship is estimated at 1:1 (Kaserer and Rapp, 2014). Healthy, attractive markets are essential, as they also promote innovation, economic diversification and greater sharing of created wealth, while making a country’s economy more resilient to shocks (European IPO Task Force, 2020).

For entrepreneurs, an IPO offers many advantages. First and foremost, of course, it is a means of financing growth, but it also enhances brand awareness and reputation (Pešterac, 2020). Compliance requirements imposed by regulators and stock market operators lend companies a high degree of credibility, making it much easier to recruit and retain employees and managers. It is also an undeniable plus when negotiating with local and foreign suppliers.

Of course, an IPO inevitably comes with additional costs associated with public disclosure requirements and other compliance obligations, not to mention the risk of hostile takeover attempts or having to deal with an attack from an activist shareholder. Table 1 lists some of the most frequently raised arguments for and against an IPO.

[1] A conventional company refers to a company with traditional business activities (manufacturing products, providing services, retailing, financial and banking services, etc.), which excludes financial vehicles such as exchange-traded funds, special-purpose acquisition companies, mutual funds, split-share companies, closed-end investment trusts, and so on.