Canadians Urged to Take Risks as Equity Deals Hit 23-Year Low

Investment bankers are advising Toronto-listed companies to either pursue acquisitions or raise capital, as deal volumes in Canada have fallen to their lowest point in 23 years.

According to league tables compiled by Bloomberg, equity and equity-linked offerings in Canada dropped for the third consecutive year, reaching their lowest levels since 2001. In 2024, there were 236 deals raising C$17.2 billion ($12 billion), compared to C$19.8 billion in 2023.

This decline contrasts with the U.S., where offerings have increased for three consecutive years, based on Bloomberg's data.

“We need corporate Canada to take on more risk,” said Peter Miller, head of equity capital markets at BMO Capital Markets in Toronto. “What we need is for corporate Canada to take on capital projects and engage in more M&A to drive growth.”

While the number of deals fell in 2024, Miller noted that the share of "clean deals" has increased, suggesting that investor demand is present. The issue, according to Miller, is not a lack of demand, but rather the supply of deals.

In a clean deal, banks can sell securities of a transaction they’ve underwritten without difficulty. In contrast, in a hung deal, banks may need to offer significant discounts or risk holding unsold inventory.

“Every deal we’ve done this year has been a green shoot,” said Nitin Babbar, global co-head of equity capital markets at RBC Capital Markets, adding that investors are keen to invest in stock offerings from companies looking to expand. “Every deal has been very well received.”

RBC Capital Markets led Canadian equity and equity-linked league tables in 2024, raising C$2.8 billion for companies. BMO Capital Markets was close behind, helping firms raise C$2.7 billion.

These two banks have dominated the rankings for five consecutive years, with at least one of them finishing at the top of the table every year since 2019. Together, they accounted for 34% of total offerings this year.

Miller highlighted two positive trends in Canada's equity offerings market. There was a significant increase in the number of mining companies raising equity capital, and after nearly 18 months of no activity, an initial public offering (IPO) took place on the Toronto Stock Exchange. Groupe Dynamite Inc. raised C$300 million in November, valuing the company at C$2.3 billion.

There is also optimism that lower capital costs will stimulate activity in Canada. The central bank has cut interest rates five times this year and adopted a more aggressive easing policy than the U.S.

“With rates having decreased significantly, the cost of capital is now lower, and we’re seeing more growth as a result,” said Babbar from RBC.