Working for publicly-listed companies took up all of Paul Barbeau’s time when he was starting out as a young securities lawyer in 2004.
“That has been the story, and I know for all my friends and colleagues, the people I grew up with professionally, it has been the same story for them repeated over and over.” fuelled by the pandemic surge in stock markets, 33 companies went public in a flurry of offerings. But any optimism that this uptick would continue has now been dashed.During the initial public offering boom of 2021, 33 companies went public. Since then, roughly half of the Canadian startups have returned to the private markets.
As public markets stagnate, private capital keeps growing. According to private market investment manager and advisory firm Hamilton Lane, the amount of private market assets under management globally went from roughly US$600-billion in 2000 to more than US$9.7-trillion in 2022. Global consulting giant McKinsey and Company estimates that total surpassed US$13-trillion as of June 30, 2023.
In 2002, large publicly-traded operating companies were still plentiful in Canada. The vast majority of TSX listings at the time – 1,166 – were operating companies, while investment products such as ETFs and closed-end funds represented a small proportion of the market, just 174 at the time. More than 90 per cent of companies globally with annual revenues of more than US$100-million are now privately held, according to Hamilton Lane data. And what is publicly traded, Mr. Wollatt points out, is increasingly concentrated.Nvidia edged ahead of other tech companies in June 2024 to become the world's most valuable publicly traded company, placing it among the likes of Apple and Amazon in the S&P seven.
As the cost of going public has grown and the potential returns have shrunk, CVCA chief executive Kim Furlong said many Canadian entrepreneurs are opting to seek private investments from outside of Canada. Becoming a publicly-traded business still offers that allure, but the cost-benefit analysis has changed. The benefits have stayed the same, while the cost of compliance keeps on growing alongside the list of governance and disclosure requirements public companies face.
“That is a lot of rules that need to be accommodated,” he said. “People that don’t do corporate governance, I think the scale and granularity of our interventions on corporate governance would really come as a surprise to them.” “There are all sorts of different private equity firms with all sorts of different mandates and, frankly, different levels of, maybe, morality here,” said McMillan’s Mr. Barbeau, though not referring specifically to the Red Lobster case. “There are many, or at least some, private equity firms whose mandate might not be consistent with long-term growth – and that is an issue.”
The debate over better stewardship may never get settled, but one inarguable consequence of the rising prominence of private“When these companies come to public markets at a later stage in their life cycle, there is no question that the average retail investor is missing out on some of that early-stage growth,” Loui Anastasopoulos, CEO of the Toronto Stock Exchange said in an interview. “But that is unfortunately just the way the markets are playing out.
“It is so important that we democratize access to private market products so that retail investors can access them fairly beyond just what their pensions are already investing in,” she said. “The strength of the TSX and the TSX-V has historically been mid-cap or junior growth companies, and for them, every marginal hour of regulatory burden is a big deal because they don’t have a legal group with 300 people,” he said. “That has been challenging for that ecosystem of junior-to-mid-cap companies.”has become a de-facto lobbyist for public companies in recent years, in hopes of bringing the cost-benefit analysis of going public back into balance.