New trading platforms connect junior players with high net worth Canadians

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Albert Oil |

TMX-PMWant to buy shares in a private company like Coral Hill Energy Ltd.? How about Star Valley Oil & Gas Ltd., which was founded by energy sector veteran Paul Colborne? Want to get those shares from management before the companies go public, and perhaps before their share prices appreciate?

Sometime in late fall or early winter of this year, TMX Group, which owns and operates the Toronto Stock Exchange, will launch TSX Private Markets. If it goes ahead, TSX-PM as we’ll call it, would allow investors to do just that. After it’s launched, TSX-PM will become the second private market platform launched in Canada in 2014 and its creators say that it will help farm new investment for Canadian businesses by increasing the liquidity of private capital.

Peter Conroy, the president of Shorcan Brokers Ltd., has been crisscrossing Canada promoting TSX-PM to brokers, private equity firms, provincial securities commissions and junior oil and gas companies. In fact, Conroy says, it was Shorcan’s oil and gas division that initially came up with the idea. He credits the Calgary-based vice-president of Shorcan Energy Brokers, Tarun Ajwani, with suggesting the TMX Group (which owns Shorcan) get into the so-called grey market. Ajwani suggested TMX create a platform where it could bring many people together to buy and sell private securities and make valuations more transparent. After all, Nasdaq entered into a joint venture with SharesPost in March 2013 to create Nasdaq Private Market and take the trading of private equity semi-public. Now Conroy and Ajwani believe the same type of platform in Canada could be a perfect fit for Canadian energy players – and particularly for oil and gas juniors.

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If you’re among the approximately two per cent of Canadians wealthy enough to qualify as an accredited investor, which you must be to play on TMX-PM, the promise of buying into private, high-potential oil and gas juniors on an organized exchange is just around the corner.

TMX Group, though, isn’t the only company wading into the private equity market. A new and potent rival, Aequitas Innovations Inc., is not only building an exchange for publicly traded shares to directly take on the TSX, it announced in the summer of 2013 plans to also create the equivalent of a dating site to hook up those with equity to sell in private companies and those looking to buy it.

Aequitas, privately held by a consortium that includes RBC Dominion Securities Inc., OMERS Capital Markets, Barclays Corp. and others, has yet to name its private equity platform. For competitive reasons, details of the “customized solution tailored to the needs of private companies who require funding and liquidity” will be released towards year-end, the company told Alberta Oil in an email.

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Aequitas and TMX Group promise that, aside from improving liquidity, their new platforms will be centralized channels for raising new private capital for small- and medium-sized Canadian enterprises. If they’re right, they could provide a new way for Alberta’s struggling junior oil and gas sector to raise capital in an era when traditional sources, the public markets and banks, aren’t coughing much up.

TMX and Aequitas are betting on the exempt market, where an increasing number of companies are turning to private equity. It’s a market with fewer regulations and lower costs for issuing private versus public stocks. You don’t, for instance, have to create, print and distribute a highly detailed and costly prospectus as you must do when issuing stock on the TSX or TSX-V. You can use an “offering memorandum” exemption, which requires less detailed information detail.

“We have our senior market and we have our venture market and now we can really delve into assisting smaller companies with liquidity and capital formation.”

Private equity is normally issued and sold on the exempt market strictly to accredited investors through exempt market dealers (EMDs). In Canada accredited investors are defined as an individual or couple with financial assets worth more than $1 million before taxes but net of liabilities. It can also be an individual whose net income before taxes in both of the past two years exceeds $200,000 and who expects to maintain that income. For couples, combined incomes must exceed $300,000 per year. As 98 per cent of Canadians are excluded from this category, many traders say it’s been difficult to match private capital with private companies without a centralized, organized platform where parties can transparently size one another up.

“From a private markets perspective,” says Aequitas chief executive Jos Schmitt, “it is a well-known fact that venture capital in Canada is not working as it should today. Many small- and mid-sized Canadian companies are unable to access the capital they need from private sources, leading them to rush into foreign ownership, strategic buyers or listing too early on public markets.” Schmitt says Aequitas’s private market solution will “unleash a new wave of funding and will help transform today’s small- and mid-sized companies into the large, market leaders of tomorrow.”

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