alternative capital markets for u.s. …apps.americanbar.org/buslaw/committees/cl650000pub/... ·...

Pho

to: L

inda

Tur

geon

, ©To

uris

me

Qué

bec

ALTERNATIVE CAPITAL MARKETS FOR U.S. ISSUERS: TSX AND AIM

Eric M. Levy, Partner

DISTINGUISHED SPEAKERS1. Louis Doyle

• Vice-President, Corporate Finance, TSX Venture Exchange• Louis will provide an overview of the TSX Group, statistical

information about U.S. companies listed in Canada and a comparative analysis between TSX and AIM.

2. Clare Grayston• Partner, Nabarro Nathanson

• Clare will provide an overview of the AIM market, including issues specific to North America.

3. François Carrier• Vice-President, Investment Banking, Canaccord Adams

• François will wrap-up the formal presentations by providing a practical perspective between the two respective markets.

OUR MISSION

g Once a decision to list shares on an exchange is made, U.S. investors should consider AIM and TSX.

g Demonstrate that both AIM and TSX are viable alternative markets for emerging and established U.S. companies

h Less costly

h Easier

h Faster

g NASDAQ remains the primary market

Going Public Try-Outs: Why U.S. Companies Should Consider a TSX or AIM Listing

g AIM and TSX offer a real exit for mature companies not ready for the pros.

g Late stage technology or biotech companies seeking a last round of financing.

g Companies seeking a less regulated and less costly public market.

g Suitability to a particular industry.

Compliance with U.S. Securities Laws

g U.S. issuer can offer its securities under Regulation S outside of U.S. without registration with the SEC, Provided certain conditions are met, including the following:hNo offers in the U.S.hCertificates must be legendedhInvestors must certify that they are not U.S.

personsg U.S. company will be required to register with the

SEC if it has 500 or more shareholders and assets of $10 million or more (Sarbanes-Oxley).

Resale of Shares Under U.S. Federal Laws

g Purchasers in the AIM or TSX offering would resell their shares pursuant to Regulation S (offers outside of U.S. with legend on certificates).

g U.S. persons who are not affiliates (director, officer of 10% or greater shareholder) who became shareholder before TSX or AIM listing and have held their shares for at least two years can sell their shares freely even in the U.S.

Regulatory Regime in Canada

g No federal securities regulator (like the SEC in the U.S.).g Two tier listing system (TSX and TSX Venture Exchange)h TSX Venture Exchange is tailored to emerging companies:

Offers a flexible regulatory regime (filing deadline to file financial statements (90 days vs. 120 days for annual statements and 45 days vs. 60 days for interim statements), disclosure on corporate governance, etc.)

h TSX Venture Exchange gives issuers access to a respected public quotation and access to a wide pool of capital.

Advantages of the Canadian Regulatory Regime Compared to the System Established in the U.S.

g Corporate Governance: The rule-based approach vs. the principle-based approach (guidelines not intended to be prescriptive).

g Issuers required to disclose corporate governance practices, including independence of each director, record of attendance, etc.

g With the implementation of Sarbanes-Oxley, it is cheaper to be public in Canada.

g Canadian regulators recently decided not to require internal control audit opinions from external auditors (Section 404 of SOX)

TRADITIONAL IPO TABLEg The IPO process, outlined below, typically takes approximately three

months to complete and is very similar to the U.S. process.

LIFE AS A CANADIAN PUBLIC COMPANY

g Requirement to file annual and quarterly financial results (requirements for TSX Venture issuers are less onerous).

g Certification of financial statements by CEO and CFO.

g Audit committee disclosure → must have a written charter.

Eric M. Levy, PartnerHeenan Blaikie LLP(514) 846-2256 [email protected]

TSX Venture ExchangeGoing public tryouts

ABA Spring Meeting

April 2006

© 2006 TSX Inc. All rights reserved. Do not copy, distribute or modify this document without TSX Inc.’s prior written consent.

13

Disclaimer

This document is for information purposes only and is not an invitation to purchase securities listed

on Toronto Stock Exchange and/or TSX Venture Exchange. TSX Group Inc. and its affiliates do not

endorse or recommend any securities referenced in this document. Please seek professional advice

to evaluate specific securities.

While the information herein is collected and compiled with care, neither TSX Group Inc. nor any of

its affiliated companies represents, warrants or guarantees the accuracy or the completeness of the

information. You agree not to rely on the information contained herein for any trading, business or

financial purpose.

This information is provided with the express condition, to which by making use thereof you expressly

consent, that no liability shall be incurred by TSX Group Inc. and/or any of its affiliates as a result

of any errors or inaccuracies herein or any use or reliance upon this information.

14

Presentation Outline

• Market Overview

• TSX Venture Model

• US Companies listed in Canada

• TSX Group versus AIM

• Contact Information

15

TSX Group is a global leader

US$1.61 Trillion inmarket capitalization

85.3 billion shares traded (2005)

US$900 billion traded (2005)

1,537 listed issuers on TSX

2,020 listed issuers on TSX Venture

North America*

1. NYSE

2. Nasdaq

3. TSX Group

4. Mexico

5. Amex

Global*1. NYSE2. Tokyo3. NASDAQ4. London5. Osaka6. Euronext7. TSX Group8. Deutsche Börse9. Hong Kong10. Spain

TSX Group Stats

Global Equity Capital Market Rankings

Source: *World Federation of Exchanges; Ranked by Domestic Market CapitalizationUnless noted, all stats are as at December 31, 2005

16

Canadian Markets at a Glance

2005 2005

1,537

$1,830.7 B

Median Market Cap $4.8 M $143.9 M

$1.2 B

$46.16 B

$58.1 M

223

-

Listed Companies 2,020

Total Market Cap $33.34 B

$16.5 M

$6.06 B

Average Financing $2.6 M

259*

Average Market Cap

46 to TSX

Financings

Going Public Activity

Graduates

* Includes IPOs, CPCs, RTOs, QTs, TSX comedowns and Other

17

TSX Venture and TSX vs US Markets

Private Equity Candidates

Pink Sheets/OTCbb

TSX Venture Candidates

TSX Candidates

NASDAQ Candidates

NYSE Candidates

Project /Project /IdeaIdea

R&D orR&D orPrototype Prototype

CommercialCommercialStageStage

OperatingOperatingHistoryHistory

StableStableProductionProduction

18

Minimum Listing Requirements Tier 1 and 2: Technology or Industrial

Category 1 Category 2 Category 3 Category 1

$5M N/A

$200K

18 mos

1 M

$1M

200

20%

N/A

$500K

$50K

12 mos

500K

200

18 mos + $100K

1M

Public Market Capitalization

$1M $1M

20%

200

20%

Category 2

Net Tangible Assets(incl. IPO $)

$1M $750K

Earnings Before Tax

$100K N/A (prior revenues

of $250K)

Working Capital 18 mos 12 mos + $100K

Publicly Held Shares

1M 500K

# of Shareholders 200 200

% Held by Public 20% 20%

Tier 1 Tier 2*

R&D MLR: Similar to category 2 but R&D incurred ($1M for Tier 1 and $500K for Tier 2) and recommended R&D program ($1M for Tier 1 and $500K for Tier 2).

* Tier 2 companies are also subject to a $0.15 minimum IPO price.

19

Toronto Stock Exchange Listing Criteria

Domestic Listing Criteria for Industrial Companies4

Criteria Senior Profitable Forecasting Profit

R&D Tech

Public Distribution• # shareholders• Public float -shares• Public float - $• Total market value

Financial Requirements

• Net tangible assets• Pre-tax earnings• Pre-tax cash flow• Cash in treasury2

• Sufficient funds3

• Working capital • Capital structure

Other Criteria• Product/service

• Operating history

3001 million$4 million

N/A

$7.5 million$300K

$700/$500N/AN/A

AdequateAdequate


N/A

$2 million$200K$500N/AN/A

AdequateAdequate


N/A

$7.5 million$300K1

$5001

N/AN/A

AdequateAdequate


N/A

N/AN/AN/A

$12 million2 years3

AdequateAdequate

Ability to commercialize

2 years

3001 million

$10 million$50 million

N/AN/AN/A

$10 million1 year3

AdequateAdequate

Advanced stage

1forecast for current or next fiscal year2raised via prospectus3 funds to cover expenses, R&D, and capex4 Mining and Oil&Gas companies have separate criteria

20


• Market Overview





21

Niche Opportunity for Venture in US

North American Stock Markets Continuum

Pink sheets

OTC BB

Nasdaq

NYSE

• No listing standards

• Senior listing standardsTSX

CNQ

• Disclosure rules• Junior listing

standards

22

How to Go Public on TSX Venture

TSX

VENTURE

TSX

VENTURECapital Pool

Company (CPC)

Reverse Takeover

(RTO)

Qualifying Transaction

Initial Public Offering

(IPO)

23

CPC: Unique Listing Vehicle

Qualifying TransactionListing CPC Process

24

Key steps and players in CPC processC

PC P

RO

CES

S

Seed Financing and Prospectus

Public Offering

Trade as CPC

Announce QT

File Disclosure Statement

Trade as Venture

Company

CPC Acquires Business

Public Financing and CPC Trades

Prospectus Receipt

Close Transaction

Seed

President’s List

Private Company Private Placement (Institution, Accredited Investor)

Identify Qualifying Transactio

n

24 Months Maximum

CPC Founders

Dealer (CF) Dealer (CF)

Advisors

Retail Brokers/Investors

CPC

PLA

YER

S

25

Graduates – A Measure of Success

Since 2000, 247 companies have graduated to the TSX and 45 companies have been merged/acquired by TSX companies

4526 25

4758

463

12

15

15

2000 2001 2002 2003 2004 2005

Merged/Acquired

TSX Venture Graduates

Does not include NEX

26

Graduate Performance(1 Year prior to Graduation)

# of Grads: 45 26 25 4647 58

302%

223%

155%

60%

6%

127%107%

195%

28%18%

61%

78%

2000 2001 2002 2003 2004 2005

Avg. Market Cap Grow th Avg. Share Price Grow th

302%

223%

155%

60%

6%

127%107%

195%

28%18%

61%

78%

2000 2001 2002 2003 2004 2005

Avg. Market Cap Grow th Avg. Share Price Grow th

Does not include NEX. Data Compiled by TSX Group as at December 31, 2005

27


• Market Overview





28

2005 2005

67

$35.1 B

Median Market Cap $3.4 M $172.9 M

$523.9 M

$2.02 B

$50.5 M

15

Listed Companies 44

Total Market Cap $824.5 M

$18.7 M

$133.5 M

Average Financing $4.0 M

Average Market Cap

6

Financings

Going Public Activity

US* Companies Listed on TSX and TSX Venture

*Companies that are headquartered and/or incorporated in the U.S.

29

US* Companies listed on TSX Venture Exchange

TSX Venture ExchangeUS Issuers by Number

Total = 44

TSX Venture ExchangeUS Issuers by Number

Total = 44

TSX Venture ExchangeUS Issuers by Market Cap

Total = $824.5 Million

TSX Venture ExchangeUS Issuers by Market Cap

Total = $824.5 Million


Agriculture2%

Technology20%

Mining41%

Merchandising5%

Oil and Gas25%

Manufacturing7%

Agriculture<1%

Technology3%

Mining36%

Merchandising1%

Oil and Gas42%

Manufacturing18%

30

US* Companies listed on TSX

Toronto Stock ExchangeUS Issuers by Number

Total = 67

Toronto Stock ExchangeUS Issuers by Number

Total = 67

Toronto Stock ExchangeUS Issuers by Market Cap

Total = $35.1 Billion

Toronto Stock ExchangeUS Issuers by Market Cap

Total = $35.1 Billion

Life Sciences

9%

Technology9%

Mining40%

Forest Products

1%

Financial Services 4%Comm.

& Media1%

Real Estate

1%

Oil & Gas4%

Diversified Industries

16%

Income Trusts15%

Life Sciences

2%

Technology2%

Mining34%

Forest Products

1%

Financial Service2%

Comm. & Media

1%

Real Estate<1%

Oil & Gas2%

Diversified Industries

48%

Income Trusts

8%


31

Special Considerations for US Companies listing on TSX

• Foreign Property Rules lifted by Canadian Revenue Agency – no investment restrictions on foreign companies

• US disclosure documents accepted in Canada

– “Multi-jurisdictional Disclosure System” (MJDS) allows access to Canadian capital markets using US documents

• Canadian regulatory commissions and exchanges are:– Customer-focused– Principles rather than rules based

• Companies already listed on another senior market may be exempt from certain requirements

– Need to apply for continuous disclosure from securities commissions

• Board and management must have adequate relevant North American public company experience

• Must have a plan for adequate shareholder base & distribution of shares to support a liquid market on TSX

• Canadian office not required

• Recommend a contact person in Canada to be accessible for shareholder and analyst inquiries

32


• Market Overview





33

AIM straddles TSX Venture and the TSX, but is more directly competitive with TSX. Roughly half of both TSX’s and AIM’s listings are in the $25 to $250 million market cap range

Market Capitalization (C$MM)

1% 2% 3%8%

12%16%

22%

13%9%

15%

36%

17% 18%

7%4%

2% 0% 0% 0%

23%

17%

11%8%

2% 1% 0%

15%13%

6%

19%

<1 1-5 5-10 10-25 25-50 50-100 100-250 250-500 500-1B >1B

TSX TSX Venture AIM

TSX Issuer base: 1,537 issuers, Market Cap = $1.8 TTSX Venture Issuer base: 2,020 issuers, Market Cap = $33.3 B

AIM Issuer base: 1,399 issuers, Market Cap = $114.8 B

• As at December 31, 2005

34

TSX surpassed AIM by total equity capital raised, quoted market value and value traded

2004TSX TSX Venture Exchange TSX and TSX Venture AIM

Number of Issuers Listed 1421 1948 3369 1021Quoted Market Value (C$ Billions) $1,546.9 $23.9 $1,570.8 $75.7New Listings 204 142 346 355Equity Capital Raised (C$ Billions) $47.1 $4.1 $51.2 $11.1

Volume Traded (Billions of Shares) 61.3 16.6 77.9 97.3Value Traded (C$ Billions) $833.9 $10.8 $844.7 $43.2Number of Trades (Millions) 40.3 2.8 43.1 1.7

2005TSX TSX Venture Exchange TSX and TSX Venture AIM

Number of Issuers Listed 1537 2020 3557 1399Quoted Market Value (C$ Billions) $1,830.7 $33.3 $1,864.0 $114.8New Listings 223 165 388 519Equity Capital Raised (C$ Billions) $46.2 $6.1 $52.2 $19.7

Volume Traded (Billions of Shares) 61.2 21.1 82.3 108.3Value Traded (C$ Billions) $1,075.2 $15.6 $1,090.8 $93.0Number of Trades (Millions) 55.2 3.4 58.6 2.2

• Source: TSX, LSE and AIM (TSX analysis of public information)

35

TSX/TSX Venture dominate trading measured by value in the more heavily traded interlisted issuers

*UK Based• January to December 2005• AIM is a market maker based dealer market. Trading figures include both purchase

and sale orders, resulting in certain “double counting” of AIM trading values.• Note: 1 interlisted issuer has been excluded from the analysis due to insufficient

trading data

0

100

200

300

400

500

600

0

1,000

2,000

3,000

4,000

5,000

6,000

Firs

t Calg

ary

Petro

leum

s

Bem

a Gold

Cen

turio

n Ene

rgy

Firs

t Qua

ntum

Yam

ana G

old

Val

ue T

rade

d (C

$Mill

ions

)

TSX/TSX Venture AIM

36

For more information, please contact:

Louis DoyleVice-President, Montreal, TSX Venture Exchange

Vice-President, Business Development,Toronto Stock Exchange

(514)[email protected]

This document is for information purposes only and is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange or Natural Gas Exchange. TSX Group Inc. and its affiliates do not endorse or recommend any securities discussed. Please seek professional advice to evaluate specific securities. While the information herein is collected and compiled with care, neither TSX Group Inc. nor any of its affiliated companies represents, warrants or guarantees the accuracy or the completeness of the information. You agree not to rely on the information contained herein for any trading, business or financial purpose. This information is provided with the express condition, to which by making use thereof you expressly consent, that no liability shall be incurred by TSX Group Inc. and/or any of its affiliates as a result of any errors or inaccuracies herein or any use or reliance upon this information.

THE AIM MARKET

April 2006

Market Facts

• 19 US companies listed; more with UK plc on top.

• Over 2,200 companies admitted to AIM.

• Raised 24 billion Sterling in total.

• Bull market.

• Stampede of foreign issuers.

Conditions for Entry

• No minimum shares to be in public hands.

• No trading record requirement.

• No minimum market capitalisation.

• No prior shareholder approval for most transactions.

• Admission documents not pre-vetted by Exchange nor

by the Financial Services Authority in most

circumstances.

• Nominated adviser required at all times.

Conditions for entry, continued

• Suitability for listing.

• Free float.

Distinctions from North American Practice

• Role of nominated adviser.

• Responsibility of directors.

• Verification process.

Issues Specific to North America

• Delaware General Corporation Law.

• Anglicisation using English plc topco and tax

consolidation.

• Section 12(g) ’34 Securities Act.

• Regulation S and resales.

• Withholding taxes.

• IFRS v US GAAP.

Cost Elements

• Tax and financial structuring advice.

• Reporting accountants.

• Lawyers.

• Nomad and broker.

• Commissions.

Continuing obligations

• 1/2 yearly reporting, likely to go to quarterly.

• IFRS v US GAAP.

• OFR.

Alternative Markets for US Issuers: A Practical PerspectiveFrançois Carrier, B.C.L., LL.B.Vice President, Investment BankingCanaccord [email protected]

April 2006

46

A Global Investment Bank• Publicly listed in London and Toronto

• Sales, trading, banking and research in all markets

• Ability to list companies in 3 countries on 7 exchanges

• 1,500 employees

• 225 capital markets professionals

• 62% employee owned

• 2005 transaction value exceeded $25 billion

• 2005 transaction leads exceeded $3.6 billion

• 433 CDN private client investment advisors

• $12 billion in assets under administration

0

100

200

300

400

500

600

F 2003 F 2004 F 2005 F 2006 T12m

Re

ven

ue

(m

illio

ns)

-30

-20

-10

0

10

20

30

40

50

60

70

80

Ne

t In

com

e (

mill

ion

s)

Revenue Net Income

47

A Market Perspective• Meeting “Minimum Listing Requirements”, from a legal or regulatory standpoint is important…• … but how about “market requirements”?• AIM, TSX Venture and TSX offer public company status to comparatively smaller companies

than is traditionally the case on more senior US exchanges;• However, the issues which arise in the context of a going public transaction and beyond are

basically the same:– How is my company valued?– What commitment am I making to investors and/or regulatory authorities, in terms of disclosure or

transparency?– How does my company trade beyond opening day?– How do I attract analyst coverage?– What should I expect from the investment bankers?

• Each issue should be carefully considered as a company considers the opportunity to proceed to a listing.

48

Size: It Does Matter• All of the TSX Venture Exchange, the more senior Toronto Stock Exchange (TSX) and AIM have

listing requirements which are broad enough to allow the listing of comparatively smaller companies;

• The issue is not to determine if the company is large enough to meet any of the listing criteria, but rather whether its size makes the listing a worthwhile endeavor;

• The TSX Venture is a predominantly retail exchange, and quality companies of smaller size have been able to develop a market there, albeit a somewhat illiquid one;

• The TSX has traditionally been reserved for “larger issuers” – a notion which, in the Canadian context, leaves ample room for small and midcap issuers;

– Canadian institutions start really paying attention at around US$100M market capitalization

• While AIM does not impose minimum capitalization requirements, issuers should be large enough to attract institutional and analyst following:

– Size of initial placing should be large enough to facilitate liquidity;– £10M is a good starting point.

49

The “Sweet Spot” for Non Resources Issuers

Market Capitalization

3.4%

9.6%

0.2% 0.6%

6.5%

11.6% 12.5%10.0%

8.6% 9.2%

82.6%

3.2%0.8%0.3%0.1%0.0%

25.9%

12.8%9.7%

4.7%

1.9%

15.4%13.4%

16.1%

86.0%

0.0%3.2% 2.3%1.2%

14.9%

31.0%

2.4%

0%

5%

10%

15%

20%

25%

30%

35%

< $10 M $10-$25 M $25-$50 M $50-$100 M $100-$250 M $250-$400 M $400-$1000 M >$1000 M

% o

f Tot

al M

arke

t Cap

NASDAQAIMTSXTSX Venture

90%

The TSX,TSX Venture, and AIM exchanges do not include metals, mining, oil, and gas. (TSX: removed 458 companies, $876B mkt cap; TSXV: removed 1147 companies, $24.8B mkt cap; AIM removed 214 companies, $24.5B)Conversion Rate = $1.75/£ ; $0.86/C$NASDAQ = Factset December 31, 2005AIM = londonstockexchange.com, December 31, 2005AIM companies taken from the AIM All-Share IndexTSX = Bloomberg, January 10, 2006TSX Venture = Bloomberg, January 10, 2006

# of companies > 2BNASDAQ = 249

TSX = 135

50

AIM vs TSX: What Is It Worth to You?• Valuation remains one of the key elements of any “going public” decision process;• All other factors being equal, the ability to obtain higher multiples for one’s company is going to

be THE deciding factor in selecting an exchange to proceed with a listing;• 2 key factors influencing valuation multiples

– Size of pools of capital available to growth companies; and– Investors’ willingness to pay for anticipated growth as opposed to trailing results;

• In recent times, our experience has been that AIM multiples were similar to those traditionally paid by NASDAQ investors;

• Traditionally, the rule of thumb for bankers in Canada has been to discount US multiples by as much as 50%, in the micro, small and mid-cap environment.

51

Liquidity Issues• Liquidity, or the ability to easily trade significant number of shares of an issuer, is a key

ingredient to success in the market;• Liquidity is important in regards to valuation, and the lack thereof will incorporate a “liquidity

discount” in the pricing of any security;• There is a notion that AIM lacks liquidity as compared to other senior exchanges, such as the

TSX;– Perception is linked to the quasi exclusive involvement of institutional, and not retail, investors in the

context of an AIM admission;– Private banks buying for the benefit of retail investors;– Next slide compares TSX vs AIM, as regards liquidity of similar tech companies.

52

TSX/AIM Liquidity Analysis – Tech Companies

Avg Daily Estimated Avg MonthlyShares o/s Recent Mkt Cap Volume Avg Monthly Vol As A %

Company Ticker (M) Price (p) (M£) (last 3m)1 Volume1 of Shares o/s

1 NETELLER NLR 119.8 682.55 817.69 - 42,797,000 35.72%2 EMPIRE ONLINE EOL 292.8 114.50 335.23 - 85,357,000 29.15%3 I-MATE IMTE 118.5 238.00 282.10 268,694 5,373,880 4.53%4 MARCH NETWORKS CORP MNW 16.4 1650.00 270.60 23,834 476,680 2.91%5 SYSTEMS UNION GROUP SUG 107.4 179.73 192.97 - 5,193,000 4.84%6 ITM POWER ITM 92.3 198.50 183.31 108,261 2,165,220 2.34%7 FUN TECHNOLOGIES FUN 49.7 345.00 171.45 491,873 9,837,460 19.80%8 CERES POWER HLDGS CWR 56.3 287.00 161.58 528,192 10,563,840 18.76%9 BETONSPORTS BSS 84.0 160.50 134.74 - 23,163,000 27.59%

10 WORLD GAMING WGP 87.9 153.00 134.55 226,978 4,539,560 5.16%11 CODASCISYS CSY 25.4 508.00 129.03 13,895 277,900 1.09%12 GAMING VC HLDGS S.A. GVC 31.1 408.00 127.03 226,635 4,532,700 14.56%13 CIVICA CIV 50.9 242.95 123.74 - 1,883,000 3.70%14 CLEARSPEED TECHNOLOGY CSD 42.6 273.00 116.24 - 2,837,000 6.66%15 SOLAR INTEGRATED TECHNOLOGIES INC SIT 33.5 343.00 114.78 - 4,940,000 14.76%16 DEALOGIC(HOLDINGS) DL 73.6 152.50 112.18 88,814 1,776,280 2.41%17 CHORION COR 25.4 430.43 109.23 113,035 2,260,700 8.91%18 PLUSNET PNT 27.9 387.22 108.03 258,484 5,169,680 18.53%19 AMINO TECHNOLOGIES AMO 58.2 152.00 88.52 - 3,497,000 6.00%20 32RED TTR 47.3 168.50 79.76 29,656 593,120 1.25%21 PURE WAFER PUR 26.5 300.00 79.48 - 137,168 0.52%22 LEADCOM INTEGRATED SOLUTIONS LEAD 99.0 75.45 74.72 - 5,073,000 5.12%23 FUTURE INTERNET TECHNOLOGIES FTI 176.0 41.50 73.05 1,016,560 20,331,200 11.55%24 INT MARKETING & SALES GRP IMSG 30.3 235.00 71.25 66,284 1,325,680 4.37%25 THOMSON INTERMEDIA THN 31.3 225.00 70.40 59,816 1,196,320 3.82%26 IBS OPENSYSTEMS OPN 40.0 167.50 67.00 226,988 4,539,760 11.35%27 ESERVGLOBAL ESG 168.1 39.00 65.54 171,872 3,437,440 2.05%28 MEDIA SQUARE MSQ 325.3 20.00 65.06 867,602 17,352,040 5.33%29 INTERACTIVE PROSPECT IPH 33.2 195.00 64.71 125,645 2,512,900 7.57%30 IOMART GROUP IOM 68.6 94.00 64.46 110,399 2,207,980 3.22%31 EXPOMEDIA GROUP PLC EXP 50.3 126.00 63.43 10,528 210,560 0.42%32 UBIQUITY SOFTWARE CORP UBQ 182.7 34.00 62.12 - 11,650,000 6.38%33 REDBUS INTERHOUSE RBI 256.2 23.50 60.21 - 21,297,000 8.31%34 UKBETTING UKB 95.6 61.50 58.81 440,344 8,806,880 9.21%35 FAYREWOOD FWY 50.8 114.90 58.36 145,841 2,916,820 5.74%36 ORPAK SYSTEMS ORPK 33.3 172.50 57.36 13,897 277,940 0.84%37 M&C SAATCHI SAA 54.2 104.25 56.51 143,157 2,863,140 5.28%38 IQ-LUDORUM IQL 714.8 7.88 56.29 821,721 16,434,420 2.30%39 FELIX GROUP FLX 123.1 43.00 52.92 610,110 12,202,200 9.91%40 ACTA SPA ACTA 35.8 146.50 52.52 96,988 1,939,760 5.41%41 XKO GROUP XKO 41.4 126.00 52.21 154,452 3,089,040 7.45%42 RC GROUP HLDGS RCG 135.3 38.55 52.14 227,087 4,541,740 3.36%43 BLOCK SHIELD CORP BLS 30.6 160.00 49.02 59,027 1,180,540 3.85%44 OCEAN POWER TECHNOLOGIES OPT 52.0 94.00 48.91 - 2,366,940 4.55%45 COMPUTER SOFTWARE GROUP CSW 55.0 87.00 47.87 155,027 3,100,540 5.63%46 ADAMIND ADA 35.4 132.35 46.80 87,996 1,759,920 4.98%47 TOLUNA TOL 35.8 130.00 46.50 - 973,178 2.72%48 CYBERSCAN TECHNOLOGY INC CYBS 15.1 300.00 45.28 42,281 845,620 5.60%49 YOUGOV YOU 13.3 327.00 43.62 22,374 447,480 3.35%

7.73%49.7%

Sources: Bloomberg and Yahoo! Finance U.K.

1. Estimated average monthly volume based on average daily volume data for last three months from Yahoo! Finance U.K., applied on 20 trading days/month basis

Technology Companies Listed on AIM(Market Caps between approx. £40M and £1B)

Avg Monthly Vol as a % of Shares o/s:AIM Liquidity premium to TSX average:

Estimated Avg MonthlyShares Out Recent Mkt Cap Avg Monthly Vol As A %

Company Market Ticker (M) Price ($) (M$) Volume1 Of Shares o/s

1 Macdonald Dettwiler TSX MDA 40.13 45.50 1,825.92 1,578,960 3.93%2 Geac Computer TSX GAC 87.50 12.80 1,119.91 5,613,680 6.42%3 Open Text TSX OTC 48.68 18.77 913.69 3,035,060 6.23%4 Aastra Tech TSX AAH 17.47 37.99 663.83 714,260 4.09%5 Gennum Corp TSX GND 35.89 17.00 610.13 807,160 2.25%6 March Networks TSX MN 16.49 34.00 560.62 2,238,780 13.58%7 GSI Lumonics TSX GSI 41.61 12.90 536.77 814,540 1.96%8 Hummingbird TSX HUM 17.42 28.06 488.79 236,060 1.36%9 BCE Emergis TSX EME 93.41 5.14 480.12 5,990,520 6.41%

10 Cryptologic TSX CRY 13.37 28.67 383.22 976,720 7.31%11 Zarlink TSX ZL 127.31 2.83 360.29 15,208,040 11.95%12 Sierra Wireless TSX SW 25.48 13.77 350.87 4,564,640 17.91%13 Tundra Semi TSX TUN 19.52 16.31 318.41 582,720 2.98%14 Certicom TSX CIC 38.19 7.88 300.91 3,632,900 9.51%15 JDS Uniphase TSX JDU 66.10 4.30 284.22 4,241,880 6.42%16 Mosaid Tech TSX MSD 11.36 25.00 283.93 656,260 5.78%17 Systems Excellence TSX SXC 67.79 4.00 271.14 8,299,880 12.24%18 Enghouse Systems TSX ESL 25.47 10.00 254.79 432,580 1.70%19 Dalsa TSX DSA 18.71 13.04 243.97 790,060 4.22%20 Workbrain TSX WB 17.73 13.10 232.29 740,540 4.18%21 Xantrex TSX XTX 27.38 8.20 227.03 943,160 3.44%22 Q9 Networks TSX Q 20.31 9.99 202.88 271,685 1.34%23 Com Dev TSX CDV 59.91 3.19 191.12 2,116,580 3.53%24 Descartes Systems TSX DSG 40.72 4.19 170.63 3,111,160 7.64%25 Matrikon TSX MTK 31.06 5.20 161.52 1,293,060 4.16%26 MKS TSX MKX 49.65 3.10 153.91 1,745,300 3.52%27 Axia Netmedia TSX AXX 54.41 2.54 138.19 3,831,380 7.04%28 20-20 Software TSX TWT 18.78 7.25 136.13 73,603 0.39%29 Tri-Vision TSX TVL 56.03 2.01 112.62 1,767,000 3.15%30 Belzberg Tech TSX BLZ 13.87 7.25 100.55 931,060 6.71%31 Sierra Systems Group TSX SSG 9.47 9.65 91.40 450,060 4.75%32 Solectron TSX SCT 20.59 4.40 90.61 156,040 0.76%33 Calian Technology TSX CTY 8.51 10.65 90.58 332,480 3.91%34 Guest-Tec TSX GTK 15.73 5.00 78.65 49,720 0.32%35 Datamirror TSX DMC 8.50 9.25 78.65 100,680 1.18%36 Zi Corp TSX ZIC 46.27 1.68 77.74 890,060 1.92%37 CSI Wireless TSX CSY 45.89 1.67 76.64 4,840,580 10.55%38 Glentel TSX GLN 10.15 7.00 71.03 154,200 1.52%

5.17%

applied on 20 trading days/month basisSources: Bloomberg and Yahoo! Finance

Avg Monthly Volume as a % of Shares Out:

Technology Companies Listed on TSX (Nesbitt Burns Tech 100 Index)(Market Caps between approx. $70M and $1.9B)

1. Estimated average monthly volume based on average daily volume data for last three months from Yahoo! Finance,

53

AIM vs. TSX – Liquidity Analysis

• Investors on AIM are predominantly institutional as retail investors usually invest through private banks.

– At first glance, this may support the view that liquidity of AIM-listed companies is less than for comparable TSX listed companies;

• Similarly, considering that AIM reporting is on an half-yearly basis, it is often argued that liquidity must be negatively impacted as a result;

• However, the larger pool of capital available and the number of institutions active on AIM acts as a counterpoint to the foregoing;

• In order to increase stability, recent trend on the TSX has seen the increase of institutional allocation – sometimes leaving as little as 10-20% of retail allocation at the outset, thus impacting overall liquidity;

• As demonstrated in the previous slide, AIM-listed tech companies, for example, enjoyed liquidity that was superior to comparable TSX-listed companies, by approximately 50%;

• Irrespective of the Exchange one lists a company on, liquidity is something to be earned – through research coverage, IR activities, communication strategy or “story-boarding”, etc.

54

Cost Structure Comparison: IPONASDAQ AIM TSX

Shares issued 5,000,000$ 20,000,000$ 5,000,000$

Dollar raised 50,000,000$ 50,000,000$ 50,000,000$

Registration Fee 9,000$ 20,000$ 5,000$

Filing Fee 9,000$ N/A 5,000$

Listing Fee 100,000$ 7,500$ 70,000$

Printing Expenses 220,000$ 40,000$ 40,000$

Legal Fees 750,000$ 600,000$ 350,000$

Accounting Fees 490,000$ 350,000$ 300,000$

Blue Sky Fees 10,000$ N/A N/A

Transfer Agent & Registrar Fees 10,000$ 14,000$ 15,000$

Retainer N/A 275,000$ N/A

Underwriting Commission 3,500,000$ 2,500,000$ 3,000,000$

Miscellaneous 75,000$ 50,000$ 25,000$

TOTAL APPROXIMATE COST 5,173,000$ 3,856,500$ 3,810,000$

Source:NASDAQ figures are stripped mean of eleven IPO's of similar size with in the last 18 mos; per companies S-1.

AIM and TSX figures are Canaccord Adams estimates of recent similar sized IPO's.

55

Cost Structure: Maintain a Listing

NASDAQ AIM TSXDirectors & Officers' Insurance 500,000$ 100,000$ 250,000$

Directors' Fees and Expenses 150,000$ 150,000$ 150,000$

Annual Audit Accounting Fees 300,000$ 150,000$ 150,000$

404 Compliance 500,000$ N/A N/A

Legal Fees 300,000$ 300,000$ 150,000$

Internal Costs/SEC & Exchange Compliance 300,000$ N/A 150,000$

SEC Filing Expenses & Listing Fees 35,000$ 7,000$ 39,000$

Nomad Expenses N/A 90,000$ N/A

Other - IR, Mailing, Printing, Travel… 250,000$ 125,000$ 185,000$

TOTAL APPROXIMATE COST 2,335,000$ 922,000$ 1,074,000$

Source:NASDAQ figures are stripped mean of eleven IPO's of similar size with in the last 18 mos; per companies S-1.

AIM and TSX figures are Canaccord Adams estimates of recent similar sized IPO's.

56

Market Comparison - Summary

NASDAQ AIM TSX TSX Venture# of Companies $100M-$400M 1,136 161 291 12

% Market Cap $100M-$400M 6.60% 37.90% 6.20% 11.60%

Average Mkt Cap/Company $1195M $70.6M $985M $18.5M

Cost to be Public $2.3M $900K $1.3M $400K

IPO Cost 5.2 3.9 4.1 NA

Recommended Mkt Cap Range >$300M $75M-300M $100M-300M <$100M

*The TSX, TSX Venture, and AIM exchanges do not include metals, mining, oil and gas companies

Note: Costs are drawn from Canaccord Adams estimates based on recent similarly sized IPOs

TSX, TSXV, AIM and NASDAQ data as of December 2005

57

AIM Structural Considerations

There are two structural choices to consider when contemplating a listing on a foreign exchange

Remain a U.S. company Reincorporate offshore

Key considerations:

Better aftermarket liquidity – electronic settlement

Higher transaction costs

Tax and securities considerations

Key considerations:

Aftermarket liquidity – physical settlement

No cost of reincorporation

Road to NASDAQ?

• May provide exemption to future SEC registration

Must be “foreign private issuer”

Canaccord Adams can assist issuers in determining the best path to pursue given specific corporate objectives

58

AIM Liquidity Considerations• The primary U.S. law impacting liquidity is Regulation S

– Securities may be resold, but U.S. companies currently must settle with physical certificates for up to two years after the offering

– More restrictive provisions do not apply to foreign private issuers• Foreign private issuer is any foreign incorporated company other than one where 50% or more of

its shareholders are US residents and any of (1) a majority of management or directors are US persons, (2) 50% of assets are located in the US or (3) the business is principally administered in the US.

• AIM is largely an institutional, block trading market – physical settlement issues generally do not affect block trading liquidity;

• AIM trading for a US retail investor is more complicated than on, say, the TSX;• Typical lock-up on AIM is 12 months based on an agreement between the company and its

NOMAD.

Recommendation: Obtain liquidity 6 – 12 months after the IPO through a block trade on AIM

59

AIM Market Benefits Driving Momentum• Structural Advantages

– Flexible, lower cost regulatory environment– Estimated cost to execute a $50M IPO: AIM = ~$3.9M vs. NASDAQ = ~$5.2M– Estimated annual cost to maintain a $200M public company: AIM = ~$0.9M vs. NASDAQ = ~$2.3M

• Pre-floatation research note by Broker is an effective tool and specifically outlines company positioning

– Company’s unique attributes are effectively communicated – Strong and cohesive working relationship with the Company enables the Broker to identify, market, and

successfully place secondary shares in a series of efficient transactions over time

• Research and market making support– Each AIM company must have a Broker, who has the responsibility of facilitating an active aftermarket– Ensures broad knowledge base and guards against “orphan company” problem– Coordinate thematic expertise of U.S. analyst with “local” relationship in the U.K.

• Disclosure– Semi-annual financial reporting smoothes any cyclicality in revenues– Lessens burden on management so they can focus on growing the business– NOMAD acts as an advisor

60

European Relevance• At first glance, AIM appears more attractive than the TSX for to small and mid cap issuers…• … assuming that AIM is indeed a possibility for your company;• In our experience, there exists another, more subjective requirement to meet in order to fully

benefit from an AIM listing: European relevance;– With the possible exception of resources, there needs to be a connection to Europe and European

investors – i.e. actual business conducted in Europe; or– There needs to be a potential for the underlying business that is truly global in scope:

• Tech companies: infrastructure, software, online payment, gaming, enabling technologies, etc.;• Resource optimization and sustainability – “green investing”;• Life sciences and biomedical devices;• Etc.

• If the business is predominantly North American, then the TSX and TSX Venture may well be the only attractive opportunity to list outside the US.

Case Studies

62

Secondary Placing of Founder’s Stock£218,000,000Completed - 8 November 2005• Canaccord wins the exclusive mandate to place 35,000,000 founders shares for the leader in

online payment processing• Despite a limited time frame, Canaccord, with Adams Harkness as a selling agent in the US,

leveraged the sales forces in three countries, and within one day the book is more than twice subscribed

• All 35,000,000 shares were firmly underwritten by Canaccord, representing the largest technology secondary done in AIM’s history

• Over 25% of the book was placed in Canada and the United States

63

Case Study: NETeller

NETeller (AIM:NLR) went public and executed three secondary offeringsWithin a year-and-a-half, Canaccord Adams raised a total of US$631M for NETeller

IPO Offering AnalysisUSD 000’s

Size of Offering $62,685

Pre-Money $373,147

Post-Money $435,832

Current Value $1,691,577

IPO Price $4

Current Price $14

Average Daily Volume 838,836

• Canaccord Adams was the Nomad/Broker on NETeller’s $62.7M AIM IPO in April 2004

• Canaccord Adams was the sole placement agent on two subsequent founder share placements in 2004 for a total of $187.3M and the sole manager for a $381M placement of founder’s shares in 2005

– Canaccord Adams leveraged sales forces in three countries and built a book that was 2x oversubscribed

– To execute the secondary offerings, Canaccord Adams released the founder shareholders from their contractual escrow

$62.7MIPO

April ‘04

US$28.4MsecondarySept. ‘04

US$158.9MsecondaryNov. ‘04

US$381Msecondary

Nov. ‘05

Canaccord Adams Non-Deal

RoadshowOct. ‘05

64

NETeller - Post IPO Performance

65

Initial Public Offering on AIM – Overview£56,200,000Completed – 16 February 2006 • Excapsa Software is a Canadian-based leading developer and marketer of online gaming

software applications• Canaccord was the Nomad and Broker for the AIM IPO and £56.2M placing• The final book was almost 4X oversubscribed with over £220M in total demand from the

United Kingdom, Canada, and the United States• There was enough North American demand alone to complete the offering• Over 60% of the offering was from existing shareholders (secondary placement)

66

Initial Public Offering on AIM – Key Data

Excapsa develops, maintains and markets online gaming software applications. The Company’s principal products are its multi-player real time Internet-enabled poker software, its back office e-cash and reporting

software, and its poker network which it manages on behalf of licensees.

(Amounts in Thousands) 6-mths Year ended(U.S. Dollars) June 30,2005 31-Dec-04Consolidated Statement of Income Data:

Sales 38,707 45,265

Operating Expenses Operating costs 23,284 29,894 General & administrative 1,495 1,114 Depreciation & amortization 879 1,487

Total Operating Expenses 25,658 32,495

Operative Profit 13,049 12,770

Other income 261 6

Income before taxes 13,310 12,776

Provision for Taxes 1,374 1,321

Net Income 11,936 11,455

Pre-Offering Historical Income Statement

Treasury Shares Issued:Secondary Shares Issued:Total Share Offering:Price: Issue Size (M): £56.8 $100.1Total FD Shares Outstanding at Admission (M):

FD Market Value at Admission (M): £221.0 $389.8Implied FD EV at Admission / TTM Revenues:

200,904,579

5X

Summary of Offering

21,561,475 30,035,716 51,597,191

110p

Excapsa sought admission to AIM based on the strength of comparable company multiples that were not achievable in Canada, and to access a global pool of capital.

67

Excapsa - Post IPO Performance

68

Initial Public Offering on AIM - Overview£25,144,511

Closing - March 21 2006• Summary

– Canadian based Technology company backed by top Canadian VCs– Raised approximately Cdn$40M treasury, and Cdn$10M secondary– Order book was oversubscribed by a factor of 7x (over $350M)– Over 40% of the offering was placed in Canada and the United States

• Deals specifics– Tax efficient corporate structure for existing shareholders– Valuation metrics exceeding North American comparables – enterprise value valuation – approximately

8.5x trailing revenues– Execution timeline – 12 weeks– Marketed in Canada, the US, the UK and continental Europe

69

Initial Public Offering on AIM – Key Data

Sandvine offers intelligent broadband network solutions which analyze network IP traffic to help broadband service providers better understand subscriber behavior, recognize and address network threats, classify

applications, and guarantee service levels without the need for infrastructure upgrades.

Treasury Shares Issued:Secondary Shares Issued:Total Share Offering:Price: Issue Size (M): £25.1 $50.2Total FD Shares Outstanding at Admission (M):

Market Value at Admission (M): £91.8 $183.5Implied FD EV at Admission / F2005 Revenues:

122.4

8.5X

Summary of Offering

26,666,667 6,859,348

33,526,015 75p

(Amounts in Thousands)

(Canadian Dollars) 2005 2004 2003Consolidated Statement of Income Data:

Sales 15,809 3,262 2,041 Cost of goods sold 4,357 702 418 Gross profit 11,452 2,560 1,623

Operating Expenses Selling & marketing 6,694 5,463 2,731 Research & development (net) 4,860 1,149 583 General & administrative 2,439 2,139 2,130 Amortization 668 388 532 Total Operating Expenses 14,661 9,139 5,976

Loss from Operations (3,209) (6,579) (4,353)

Other income 244 195 272

Loss Before Tazes (2,965) (6,384) (4,081)

Provision for Taxes (14) (50) -

Net Loss for Year (2,979) (6,434) (4,081)

Year Ended November 30th

Pre-Offering Historical Income Statement

Sandvine sought admission to AIM based on the strength of comparable company multiples that were not achievable in Canada, and to access a global pool of capital.

70

Sandvine - Post IPO Performance

alternative capital markets for u.s. …apps.americanbar.org/buslaw/committees/cl650000pub/... ·...

Documents