Back when the sky was last falling, during the worst days of the tech wreck four years ago, an income trust went public with little fanfare.
It was a financing that faced headwinds, as it was done at a time when most investors were licking their wounds and refusing to commit new cash to the market. The company in question was Energy Savings Income Fund, and if there was one IPO to own in the past five years, this was it.
In fact, if you contrast the stellar performance of a bear-market debut such as Energy Savings with that of trusts that go public when times are booming, such as last summer, the conclusion is obvious. It pays to be fishing when everyone else has their boats out of the water.
Which brings us to opportunities that popped up in the last month, compared with what might lie ahead. Shortly after the Finance Minister -- now known as Rally Ralph -- waded into the sector and hammered unit prices, two trusts made acquisitions. With the political noise, these deals got little attention.
Somerset Entertainment Income Fund grabbed a rival specialty music company, called Compass Production, to establish 85-per-cent market share in its line of business, which is putting CD displays into Shoppers Drug Mart and Wal-Mart and all those other places that people make impulse buys.
Somerset raised $32.6-million by selling subscription receipts at $7.75 each. The deal was led by BMO Nesbitt Burns, RBC Dominion Securities and TD Securities. To make it go, the company's executives stepped up with $6-million of their own money.
The other takeover saw Versacold Income Fund take out a player in the storage game, P&O Cold Logistics, assisted by a Scotia Capital-led $25.5-million financing, at a cost of $7.50 for each receipt.
Those willing to set aside fears of a total tax-driven meltdown in trusts have already been rewarded for taking a risk on these financings. With the tax issue now settled to the trust sector's advantage, Versacold has popped to yesterday's close of $8.45 on the Toronto Stock Exchange, while Somerset closed at $7.95. With both companies, investors had a chance to buy proven management teams on the cheap.
Contrast that dynamic -- proven ability to run a public company -- to what's coming if, as expected, the dealers treat the fact that it's game-on for trusts by bringing about $3-billion worth of new companies to market in the first quarter of next year. In any IPO, you're betting on the ability of a rookie management team to deal successfully with the realities of running a public business. The early months of 2006 will add market froth to that mix.
Signs of life in tech market
When last we checked the tech sector, back in October, the only way to get an IPO was to cut both the size and price of the offering. A company in the broadband equipment space named VCom set out to raise $40-million by selling stock at $9 a share, and ended up taking in $25-million by marking the shares down to $7.50.
Well, this week the tech market is showing real signs of life. Miranda Technologies, which makes hardware and software for broadcasters, bumped up the size of its IPO to $135-million from $100-million, while keeping the target price in the previously announced range of $10-to-$12 a share. The debut is being led by Genuity Capital Markets.
Dofasco auction still on
Don't get caught up in casting ThyssenKrupp as a white knight that has shut down the bidding war for Dofasco. While the German steel-maker's quick $4.8-billion bid -- they call these fill-or-kill orders on trading desks -- enjoys the approval of Dofasco's board of directors, the fact that this stock is trading well above the $61.50 offer is evidence that the auction is still on.
With Dofasco shareholders already enjoying premium valuations, a controversial call on advisers by the Canadian steel company is getting grudging approval on the Street. Dofasco looked to long-time investment dealer RBC Dominion Securities for advice on this deal, and did not hire a global bank to back up the Canadian shop, despite strong pleas to do so from all the global investment banks.
Citigroup is working with ThyssenKrupp, while UBS Securities is advising Arcelor, the other horse known to be on this course.
Correction:
Sometimes dealers grow too quickly to keep track of. Winnipeg-based Richardson Partners now has 53 financial advisers on board, of whom seven have joined in the last 10 days. With these new arrivals, the privately-owned firm will have assets in the $5-billion range. Incorrect figures appeared in yesterday's column.
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