When the boom in special purpose acquisition companies (SPACs) took off in the United States, journalists kept asking TMX chief executive John McKenzie when Canada would join the party.
McKenzie laughed and said: “I had to remind them, we have been doing this for 30 years, we just haven’t been telling people about it.”
McKenzie is referring to what is arguably the world’s most successful program for allowing small companies to access the liquidity offered by a public stock exchange in a cost-effective way.
The TMX Group’s Capital Pool Company (CPC) program is a unique Canadian invention that supports earlier-stage private companies listing on the TSX Venture Exchange.
McKenzie says that unlike the senior Canadian market, which has had initial public offerings largely dry up this year, the CPC program has been going strong.
“The Venture Exchange is less dependent on movement in public market values and public market liquidity because a lot of those CPC deals are sponsored by private investors,” he says.
“They can actually get financing done even in more challenging marketplaces.”
McKenzie, who spoke to Chanticleer in Sydney this week during a trip to Australia to promote investment in Canada, says the simple explanation for the CPC program is “a small-sized SPAC”, and the benefits of dual listing of Australian companies on TMX exchanges in Canada.
“A capital pool company is created by some founder investors, and then they have a period of time to go and find the small business that they’re going to then bring into the public shell,” McKenzie says.
“And you can imagine, for a small company, this is a much easier way to go public than doing their own public roadshow. The founders are required to stay in for a period of time to support the company.
“You can set these up with $C5 million to $C10 million [$5.6 million to $11.2 million) of capital. There are around 100 of these active growing companies. And even though the market in the first half of the year for the large deals was thinner, this program was up 25 per cent this year.”
McKenzie says he joined several other large Canadian pension funds in coming to Australia to promote the Canadian stock market and also the benefits of investing in TMX Group. The trip came after heightened activity by Canadians over the past year.
He noted that TMX had profit margins of 50 per cent compared with the 70 per cent profit margins enjoyed by the ASX. He says the difference in valuations is probably because of the competition, given that Canada has seven equity market trading platforms.
One similarity between the two countries is that the TMX and ASX both have a monopoly on clearing and settlement. Also, both are updating the technology underpinning their clearing and settlement.
The ASX is spending $250 million to $300 million on the CHESS clearing and settlement replacement, which could be ready to go live at the end of 2024.
McKenzie says the TMX is four years into a five-year clearing and settlement replacement project that was originally budgeted at about $70 million in capital expenditure. He says the all-up cost will be about $130 million. The new system started industry-testing this month.
McKenzie says the TMX built the new clearing and settlement system using in-house resources and with outside assistance from Indian tech company Tata Consultancy Services. He expects it to go live next year.
The visit to Australia by the Canadian business leaders was aimed at building stronger awareness of the linkages between the two countries. For example, 22 companies that are listed on the Toronto Stock Exchange and the Toronto Venture Exchange have their headquarters in Australia.
About two-thirds of these are dual-listed on the ASX.
“We’ve had success here in the past, but we’re trying to really get the investors – the pension funds, super funds, and the buy side and sell side dealers to understand the market potential for their clients,” McKenzie says.
Canada accounts for only 2 per cent of the global sharemarket capitalisation, but it has been proactive in making it easier for Australian investors to connect, including by offering futures and options listed on the Montreal Stock Exchange in the Australian time zone.
Fetching latest articles