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MaRS Best Practices Series
Special Valuation Series Nov. 12th, 2010
MaRS Best Practices Special Valuation Series
Friday Nov 19th 12:00-1:30pm
Tim Babcock Director, Listed Issuer Services TSX Venture Exchange
Rupert Merer Energy Technology Research Analyst National Bank Financial (NBF)
Speakers:
More information and registration at www.marsdd.com/bestpractices
MaRS Tim Babcock, Director, Listed Issuer Services TSX Venture Exchange November 19, 2010
A Capital Opportunity for Clean Technology Companies Listing on Toronto Stock Exchange and TSX Venture Exchange
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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 or Natural Gas
Exchange. TMX 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 TMX 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 TMX 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.
© 2010 TMX Group Inc.
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1. TSX and TSXV – The 3 Minute Overview
2. The Clean Technology Sector
3. Structure Tools for Entrepreneurial Finance
4. Case Studies
Outline
5
(53.8% Ownership)
(47% Ownership)
(19.9% Ownership)
Data
Energy
Deriva-ves
Fixed Income
Equi-es
• Canada’s financial system has
been ranked as the soundest in the world for two years in a row by the World Economic Forum
• Lowest debt-to-GDP among G7
• Relatively strong financial
position: – 12 years of surpluses
1998-2009
• Significant resource base
Strong fundamentals in Canada
TMX Group is a Multi-Asset Class Market Leader
(51% Ownership)
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General Conditions YTD September 2010: Key Markets
TSX/TSXV LSE/AIM NYSE/AMEX Euronext (US)
Nasdaq ASX Hong Kong Exchanges
Number of Issuers Listed
3,628 2,978 2,314 2,805 1,966 1,365
Quoted Market Value (US$ Billions)
1,867.6 3,467.6 12,278.4 3,480.7 1,318.6 2,536.0
New Listings 370 113 78 157 69 58
Equity Capital Raised (US$ Billions) 32.6 41.1 66.9 4.7* 25.4 42.8
Value Traded (US$ Billions) 993.2 2,123.3 13,794.6 9,998.0 786.1 1,027.6
Broad Stock Market Indexes (%Change over Sept 30 2009)
8.5% 8.9% 5.4% 11.6% -2.2% 7.0%
*NASDAQ Information does not include secondary financings Source: Exchange Websites, World Federation of Exchanges, (TMX analysis of public information)
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TMX Group’s Equity Exchanges Support a Diverse Issuer Base
Number of Issuers by Sector
Includes issuers on Toronto Stock Exchange and TSX Venture Exchange (100% = 3628)
As at September 30 2010
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Access to Capital: 2009 was an all time record year for financing on TSX
*TSX Venture Exchange commenced operations on November 29 1999
Toronto Stock Exchange and TSX Venture Exchange Total Financings (C$Billions) 1999 – 2010 September
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2,143 companies 27 graduates in YTD Sept 2010 20 graduates in 2009 45 graduates in 2008
1,485 companies
TSX Venture Exchange
• Access to capital for earlier stage companies or smaller financings
• Total market cap of $48.5 Billion & average market cap of $22.6MM
• Cost effective stepping stone for international companies looking to list on a quality North American market
• Exchange mandate to mentor management of newly public companies
• Streamlined graduation to TSX when senior market requirements are met
• 103 year history
Toronto Stock Exchange
• Senior market for well established businesses and management teams with experience in public markets
• Total market cap of $1.9 Trillion & average market cap of $1.3B
• 30% of TSX issuers >$500M are interlisted on a US exchange
• Access to larger, more international institutional investors and greater analyst coverage
• Globally visible specialized indices
• 157 year history
Unique Equity Market Structure
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TMX Group Serves Companies at all Stages of Growth
Market Capitalization Toronto Stock Exchange and TSX Venture Exchange
Unique feeder system
478 graduates + 93 M&A*
*From January 1, 2000 – September 30, 2010
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Toronto Stock Exchange issuer base: 1,485 issuers, ~$1.9 trillion market cap TSX Venture Exchange issuer base (excludes NEX): 2,143 issuers, ~$48.5 billion market cap
As at September 30, 2010
473 Issuers
549 Issuers
463 Issuers
1922 Issuers 191
30 Issuers
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TMX Group Global Leadership Strengths
All data is as of or YTD September 30, 2010
1480 issuers
55% of the world’s public mining companies
140 going public events $9.8 B equity raised
$305 B value traded
128 issuers
Number one in the world by number of public clean technology companies
8 going public events
$1.1 B equity raised $7.6 B value traded
3628 issuers
370 going public events
$33.7 B equity raised
Average Financing: TSX $51.9 M TSXV $3.5 M
468 issuers
Over 35% of the world’s public oil and gas companies
44 going public events $8.2 B equity raised
$204 B value traded
Mining
Energy & Energy Services
Clean Technology
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1. TSX and TSXV – The 3 Minute Overview
2. The Clean Technology Sector
3. Structure Tools for Entrepreneurial Finance
4. Case Studies
Outline
13
Clean Technology Market on TSX and TSXV
128 Companies
30% of TSX Issuers in the Sector
Graduated TSXV
$17B
Total Market Cap
$1.1B
Equity Capital Raised
As at and YTD Sept 30 2010
8 New Listings
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Clean Technology Financing by Subsector
As at and YTD Sept 30 2010
Of the $1B+ in equity capital raised year to date this is how the funds have broken down by subsector on TSX ($943M) and TSXV ($152M)
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Strong Growth in Key Market Metrics
Analyst Coverage
Avg. Analyst Coverage for Clean Technology Companies by Market Cap
Strong analyst coverage combined with growth in trading and liquidity provides posiMve market fundamentals for Clean Technology companies to finance and grow.
Market Capitalization (C$ Millions) 150-500 >1000 50-150 <50 500-1000
Source: Capital IQ, June 2010
Volume of Shares Traded
Millions of Shares Traded in the Clean Technology Sector
2005 2009 2007 2008 2006
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TSX Venture 50® - Clean Technology Top 10
TOP 10 CLEAN TECHNOLOGY COMPANIES
341% One-year Average Market Cap Growth
236% Average ROI in 2009
542 Million Volume of Shares Traded in 2009
2 Average number of analysts covering the Top 10
TSX Venture 50® is a ranking of strong performers on TSX Venture Exchange. These emerging companies have seen tremendous growth over the past year, offered remarkable return to their shareholders, are actively traded in the market and are well-covered by the analyst community. In short, they have proven themselves to be the rising stars of Canada's public markets.
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CONSTITUENTS
Algonquin Power & Utilities Corp. (AQN)
ATS Automation Tooling Systems Inc. (ATA)
Azure Dynamics Corporation (AZD)
Ballard Power Systems Inc. (BLD)
Boralex Inc. (BLX)
Boralex Power Income Fund (BPT.UN)
Brookfield Renewable Power Fund (BRC.UN)
Burcon NutraScience Corporation (BU)
Cascades Inc. (CAS)
Capital Power Income LP (CPA.UN)
5N Plus Inc. (VNP)
Westport Innovations Inc. (WPT)
S&P/TSX Clean Technology Index
Launched in March 2010
The S&P/TSX Clean Technology Index
Measures the performance of
companies listed on TSX that generate upwards of 50% of their revenue from
products or services focused on reducing
or eliminating negative ecological impacts, while at the
same time improving the
productive and responsible use of natural resources.
GLV Inc. (GLV.A)
Innergex Renewable Energy Inc. (INE)
Macquarie Power & Infrastructure Income Fund (MPT.UN)
Magma Energy Corp (MXY)
Newalta Corporation (NAL)
Northland Power Income Fund (NPI.UN)
Plutonic Power Corporation (PCC)
Ram Power Corp. (RPG)
RuggedCom Inc. (RCM)
Tembec Inc. (TMB)
WaterFurnace Renewable Energy Inc. (WFI)
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1. TSX and TSXV – The 3 Minute Overview
2. The Clean Technology Sector
3. Structure Tools for Entrepreneurial Finance
4. Case Studies
Outline
19
Benefits of Going Public
Access capital and
future financing
opportunities
Facilitate
growth
Increase visibility
and prestige
Provide liquidity
for shareholders
Create employee
incentive
mechanism
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Methods for Going Public on Toronto Stock Exchange or TSX Venture Exchange
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Capital Pool Company™ (CPC) Program has a Strong Track Record
Since inception: • Over 2095 CPCs were created • 80% have completed their QT – over 1660 companies
• 332 TSXV Graduates now trade on TSX • 96 of the grads were CPCs • 7 of 9 new Clean Technology listings in 2009 were QTs
• A new clean CPC shell has none of the hidden costs of a shell with previous operating history
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Benefits of the CPC Program for Small Companies
1. Cash on the Balance Sheet;
2. Potential to identify Directors and Long-term Investors;
3. At least 200 Public Shareholders to create liquidity;
4. Listing Process can be faster and less costly.
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CPC Acquires Business (QT)
Public Financing and CPC Trades
Seed 24 Months Maximum
Capital Pool Company: Process
Aftermarket and Growth
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Seed Financing • seed financing of the company by 3-5 Founders/Directors
CPC IPO • a prospectus offering to create a corporate vehicle with
public distribution
Qualifying Transaction (QT) • a target business is identified, disclosed and acquired
Aftermarket and Growth • company trades and executes its business plan
Capital Pool Company: Milestones
25 25
CPC Acquires Business (QT)
Public Financing and CPC Trades Seed
24 Months Maximum
Qualifying Transaction
26 26
Considerations for a Qualifying Transaction:
• Significant growth opportunity & reason to be public
• Strong & coachable management
• Capital needs: $2+ Million
• Close to or at commercialization
• Meets minimum listing and audit requirements
• Stock options and acquisition currency
• Strong market appetite
• 12 to 18 month cash requirements (can be financed)
Selecting a QT Candidate
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Consider this…
Success Factors:
• Lots of cash on closing
• Market interest and understanding
• Deliver in short term post closing
• Reasonable valuation – not always maximum valuation
Potential Pitfalls:
• Listing requirements shortfalls
• Insufficient cash/working capital on closing
• Valuation versus escrow regime (TSXV Policy 5.4)
• PIFs - timing and impact on circular
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CPC Acquires Business (QT)
Public Financing and CPC Trades Seed
24 Months Maximum
Aftermarket and Growth
Aftermarket and Growth
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Consider this…
Success Factors:
• Press release clarity / quality
• Broker management and support
• Timely disclosure against published milestones (good and bad)
Potential Pitfalls:
• Orphan status
• Mistrust of management’s willingness to communicate
• Market fluctuations
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Toronto Stock Exchange and TSX Venture Exchange listing fees are competitive
Min and Max Initial Fees (C$000s)
*There is no maximum fee. Market cap of $1B was used for illustration purposes **NYSE has a USD $500,000 cap on listing fees per issuer, per year ***Does not include NOMAD fees NB: For international companies, TSX initial listing fees max out at $150K
Source: TSX analysis of exchange listing fee documents. As at August 25, 2010
79
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Min and Max Sustaining Fees (C$000s)
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TSX and TSX Venture Exchange Estimated Listing Costs
Toronto Stock Exchange TSX Venture Exchange
Listing Fees $10,000 - $200,000 $7,500 - $40,000
Accounting and Auditing Fees $75,000 - $100,000 $25,000 - $100,000
Legal Fees $400,000 - $750,000 $75,000+
Underwriter’ commission 4 – 6% Up to 12%
Other fees to consider include:
• Securities Commissions fee
• Transfer agency fees
• Investor relations costs
• Geological or engineering reports
• Printing and translation costs
• Valuation reports
• Director and Officer liability insurance
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1. TSX and TSXV – The 3 Minute Overview
2. The Clean Technology Sector
3. Structure Tools for Entrepreneurial Finance
4. Case Studies
Outline
33
BioExx Specialty Proteins Ltd. Technology company focused on the extraction of oil and high-value proteins from oilseeds for the global food market. #1 Ranked Clean Technology Company and “Pick of the Street” - 2010 Venture 50TM
Date of Listing Graduated from TSX Venture Exchange to Toronto Stock Exchange on January 22, 2010
Market Capitalization
$273.1 million as of June 30, 2010
Analyst Coverage 7 Canadian Analysts / 1 US Analyst (Source: CapitalIQ)
Financing, Price & Trading Volume
History (Sept’06 – June’10)
*(Source: Capital IQ)
BXI
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Catch the Wind Based in Manassas, Virginia, Catch the Wind develops, manufactures, and sells laser based wind sensor systems for the wind power generation industry in the United States. One of the Top 10 Clean Technology companies – 2010 Venture 50TM
Date of Listing Listed on TSX Venture Exchange through the CPC Program on April 3, 2007 Completed Qualifying Transaction on September 23, 2008
Financings $5.2 million by Private Placement in April 2010 $21.8 million by Private Placement in May 2009 $15.7 million raised at time of Qualifying Transaction in September 2008
Market Capitalization
$86.3 Million as of June 30, 2010 based on 57.5 million shares outstanding
Analyst Coverage 4 Canadian Analysts (Source: Capital IQ)
Price and Trading Volume
(Sept’08 – June’10) *(Source: Capital IQ)
CTW
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China Annie Tao 416 947-4273 [email protected]
Diversified Industries Raymond King 416 947-4675 [email protected]
United States Tala Zarbafi 416 947-4636 [email protected]
Energy Cindy Gray 403 218-2822 [email protected]
Mining Greg Ferron 416 947-4477 [email protected]
Clean Technology Robert Peterman 416 947-4305 [email protected]