B.C. firms cash in on increased appetite for tech IPOs

BBTV, East Side Games aim to raise more than $300m as pandemic boosts tech adoption

Josh Nilson’s East Side Games is in a $150 million reverse takeover with fellow Vancouver gaming company Leaf Mobile Inc. |  Chung Chow/BIV files

If one were to play the role of a Canadian tech CEO in an alternative reality in which no pandemic upended the global economy, the allure of going public in 2020 would have been palpable.

The preceding years drew giants to the market like Shopify Inc. (TSX:SHOP) and Lightspeed POS Inc. (TSX:LSPD), raising $131 million and $240 million, respectively, on their first day of trading.

“Having those Canadian success stories for other private tech CEOs to look at really provided some confirmation that going public was a legitimate path to continue the expansion of your business,” said David Barr, president and CEO of PenderFund Capital Management Ltd.

The pandemic has accelerated the appetite for tech companies to go public as more businesses and individuals shift activities online, added Barr, whose Vancouver-based firm invests in private and public companies.

“[It’s] the strongest appetite for tech IPOs I’ve seen since 2000,” he said.

Earlier this month Vancouver-based BBTV Holdings Inc. released a prospectus as part of a bid to raise $172 million. The holding company plans to use the proceeds to buy out Vancouver-based BroadbandTV Corp., which is majority-owned by Luxembourg’s RTL Group.

The European media company, a subsidiary of Germany’s Bertelsmann SE & Co. KGaA, delivered a $36 million investment to the Vancouver company in 2013 in exchange for a 51% stake.

BBTV controls the remaining 49% of BroadbandTV, which is best known for developing a platform that helps create, distribute and monetize video content for online consumption. If the IPO is successful, Shahrzad Rafati, CEO and a director of BBTV and BroadbandTV, would gain great control over the company she founded in 2005.

Meanwhile, privately owned East Side Games is navigating a $150 million reverse takeover deal with fellow Vancouver gaming company Leaf Mobile Inc. (TSXV:LEAF) that will pay out $50 million in cash and the remainder in the form of stock.

East Side Games owns more than 20% of Leaf’s shares.

The gaming companies would be able to access markets for additional capital to grow as more people turn to their screens for entertainment.

West Coast companies are also benefiting from eager venture capitalists whose investments totalled $553 million from the start of 2020 through to June 30, according to CPE Media Inc.’s analytics division data released in September. That’s up 31% from the same period in 2019 when the province tallied $422 million in venture capital investments.

While lockdowns may have reduced in-person elbow-rubbing in the spring, 79 deals were struck in B.C. during 2020’s first half compared with 61 during 2019’s first half (H1). But it’s a different story countrywide. Canadian investment activity fell 11% annually to $2.59 billion when compared with 2019 H1.

One explanation for B.C. defying national downward trends is the source of the capital.

Ontario and Quebec – home to the top-performing companies so far this year with raises totalling $1.048 billion and $700 million – are far more reliant on domestic investors, who accounted for 59% of investment sources for Ontario during 2020 H1 and 85% for Quebec.

B.C. companies, meanwhile, received just 28% of investment from domestic sources compared with 51% from the U.S. and 21% from other foreign sources.

“There’s been so much private capital invested in the technology industry, and so there was kind of a hesitation to go public,” Barr said. “However, what we’ve seen is there’s now a lot of capital in the public markets. And because you have liquidity you can get a more fulsome valuation for your business. So the early supporters, employees, investors in these private tech companies are seeing the opportunity to increase the value of their investments by going public now.” •