Ontario's current Liberal government, and friends of the old Tory regime, stand to benefit from the boom in income trust IPOs that's shaping up this winter.
On the back of Finance Minister Ralph Goodale's decision not to tax trusts, the sector is set to welcome all sorts of new members. Estimates put the value of trust IPOs heading to market at more than $5-billion, with at least three deals in the $500-million-plus range.
It's in everyone's interest to see high-quality issues come to market -- no more FMF Capital-type trusts that fall apart within months of their debut. And there's one company that every institutional investor wants to see come to market.
Teranet Inc. is Ontario's privately owned electronic land registry. Back-of-the-envelope estimates put the total value of the company in the $3-billion range. That makes it a big, index-eligible trust to rival the likes of the Yellow Pages Group.
As the only player in a low-growth sector, Teranet is tailor-made for the trust structure. The company is owned by Teramira Holdings, which is in turn headed by Montreal financier Eric Baker and backed by some of the country's largest pension funds and money managers. Several of the owners have ties to former Ontario premier Mike Harris and his Conservative government.
For the current owners, the sweetest part of a possible Teranet IPO is the fact that the prospect of a deal could ignite a bidding war. Private equity funds, such as Macquarie North America, have already shown an interest in the business, which is a play on electronic infrastructure. Macquarie already owns a stake in Ontario's 407 toll highway.
The Ontario taxpayer stands to make money here because the terms of Teranet's 2003 sale, which saw 50 per cent of Teranet sold by the province for $370-million, gives Ontario a veto on any Teranet sale through to August, 2006. The province also gets a portion of any profit earned by Teramira.
Other companies being pitched on launching trusts include the brewers Labatt, Molson Coors and Sleeman. The Street is thirsty for a deal that would see ownership of the Beer Store retail chain carved out of these three erstwhile rivals but, to date, the brewers have been happy to keep control their distribution network. A Beer Store or Teranet offering could both outdo the largest trust IPO in the last three months of 2005, the $455-million debut of CanWest MediaWorks.
Last year saw the trusts enjoy a hot run, even with the time-out on IPOs imposed by the Finance Minister. PricewaterhouseCoopers yesterday published a study that showed news trusts were valued at $5-billion in 2005, representing 74 per cent of all equity offerings.
Institutional demand for trusts is now building steadily. RRSP season cash is starting to pour in -- about $200-million arrived in income-oriented mutual funds back in November, at the height of the Ottawa-inspired uncertainty in the sector. The politically inspired zaniness of last year's market becomes a more distant memory.
The buy-side of the Street is going to be enormously hungry in a few months. The question now is just which business owners get to cash in on growing investor interest.
Orion maintains momentum
Orion Securities is heading into the new year with all sorts of momentum.
Last year saw the employee-owned investment dealer add staff to its equity desk and investment banking operations. Recognizing the push in sales, trading and research, the 2005 report on equity research from consultants at Brendan Wood International showed institutions viewed Orion as a brokerage house on the rise.
Today, Orion takes another step forward with the arrival of Ron Schwartz as its new head of research. With this move, the dealer is trying to turn its clients' positive views into more orders and a larger share of business.
Mr. Schwartz is a proven manager and analyst, a relatively rare combination. He was the head of research at CIBC World Markets, the same dealer that was home to Orion's recently named head of investment banking, Wayne Adlam.
On Mr. Schwartz's watch, CIBC World Markets was a top-ranked and profitable equity trading platform. As a special situations analyst, a jack of all trades that suits a small dealer, Mr. Schwartz has won kudos for coverage of 25 companies over nine different sectors.
With this move, Orion veteran Ted Larkin can set aside the role as head of research that he assumed reluctantly 18 months ago. Mr. Larkin was a player/coach as he never stopped publishing reports on companies, and now he gets back to his passion -- coverage of transportation and industrial products companies.
Orion also recently welcomed trader Jake Bellchamber to the equity desk. He was at National Bank Financial.
Top 10 income trust IPOs (in $ million)
| Name | Value | Sector |
| CanWest Media Works | $550 | Communications and Media |
| Royster-Clark Ltd. | 325 | Retail |
| Canexus | 300 | Industrial products |
| Primary Energy Recycling Corp. | 285 | Oil and gas |
| Aeroplan Income Fund | 250 | Services |
| Newport Partners | 213 | Services |
| Spinrite Income Fund | 203 | Consumer products |
| New Flyer Industries Inc. | 200 | Industrial products |
| Morneau Sobeco | 200 | Services |
| FMF Capital Group Ltd. | 198 | Financial services |
SOURCE: THOMSON DATASTREAM
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