Recently, in providing capital market related consulting services to Canadian companies, my consulting firm has been able to successfully utilize the U.S capital markets with more frequency for both public and private companies.
It is obvious that the U.S. capital markets have been continually liquid and active for growth companies. U.S laws and Exchange practices facilitate financing, listing and trading for Canadian companies, both those listed and private.
The various Canadian Exchanges have worked hard to attract growth companies. With new listings decreasing, a smaller capital market, and the negative impact that the resource meltdown continues to have, many smaller Canadian companies, even those that are not resource based, often have resistance by both Canadian and non-Canadian investors who may consider them as “junior Canadian stocks.” The lack of buyers and ability to finance has also greatly impacted the investment banking and brokerage firms in Canada that service the growth market. Even those Companies that have been able to access capital will have expanded opportunity for growth through a careful consideration of the US capital market.
CHANGES MADE IN THE US TO ACCOMMODATE CANADIAN COMPANIES
The exchanges and trading platforms and regulators have enabled changes in the laws and regulations to make the U.S. market much more accessible to Canadian growth companies. This in turn brings access to a broader investment base and more opportunities to raise capital. A recent discussion that I had with the Canadian Company liaisons at the OTC Trading Platform made it clear to me how the exemptions provided to Canadian companies that they and the Exchanges offer have encouraged a large volume of emerging company activity.
ACCESS TO A BROADER MARKET
An important source of our firm’s capital market contact base has been family offices. We have noticed that this investment sector in the U.S. has grown exponentially in the last decade. There is also the continued demand for various asset based and and growth oriented investment offered through a wide range of specialty investment funds, hedge funds, private equity and investment of high net worth individuals. This domestic demand for growth company investment has created one of the world’s strongest markets for growth capital and liquid trading markets for emerging companies. Canadian domiciled companies, particularly those companies with U.S. based activities are often very attractive to these investor classes.
Social trends and the resulting social media in the U.S. has become a more important influence in attracting advocacy and affinity groups in various sectors including health care, green related and public safety companies. These affinity buyers and advocates can become important sources of investment through U.S. based investor relations initiatives.
In our consulting efforts to craft a company into being a “thought leader” in commercial and financial markets, we have been assisted by developing close relationships with appropriate advocate and other special interest groups and their role as opinion leaders in specific industries. Participation at U.S. conferences and other investor events such as web conferences and Company educational events adds to the advantages of U.S. financing, particularly listing.
THE USUAL ARGUMENTS AGAINST US INITIATIVES
The typical argument against a U.S. initiative that I have heard over time has been related to extra cost and, regulatory snafus and some lack of flexibility.
For public companies, recent legislation and regulations have created a strong OTC Trading Platform together with various tiers available for growth companies with more flexible listing requirements. The changes to the legal environment also make it easier to leap-frog to the U.S. market by achieving an initial listing in Canada followed by the U.S. listing or entry to the OTC Platform as a stepping stone to later listed status. Asset based and private equity financing for private companies typically has competitive costs, but have a deeper market of investors in the U.S.
The real value added in the U.S. is the depth of available investors , sources of financing,and related benefits to shareholder value. The most important consideration for access to the U.S. capital market is weighing the value of access to capital vs. any cost increase.
INCREASED OPPORTUNITY FOR RESOURCE COMPANIES
Recent improvement in the market for certain segments of resource stocks creates new opportunities to finance their capital needs in the U.S. markets. The U.S. market investment can often trigger interest from other global resources. The “flight to safety” observed in the dollar and in capital shifts provide renewed interest in gold, silver, nickel and other strategic metals.