September 12, 2007
A key business strategy that often preoccupies small and medium sized companies looking to list on a stock exchange is choosing a location.
A widely overlooked option is the Toronto Stock Exchange (TSX). Despite its lower international profile, the TSX and TSX Venture Exchange provide what many companies are now seeking: strong liquidity in the form of good analyst coverage; a ready pool of retail and institutional investors; and freedom from expensive, U.S.-style regulatory requirements. At the same time, the TSX is one of the world's largest, blue-chip exchanges with special expertise in emerging companies, making for a practical and cost-effective stepping stone to Nasdaq for mid-market companies.
Meanwhile, law firm billings from a single mid-market company listing on the TSX typically start at about C$300,000. As a result, lawyers have become increasingly involved in raising the profile of the TSX globally.
Many Canadian lawyers are still getting used to this entrepreneurial approach to practising law.
But Cheryl Reicin, who practised law in the United States for 20 years before joining Torys' Toronto office, says that providing advice on financing through the public markets is standard in U.S. law firms, and that issues ranging from regulatory burdens to liquidity are matters that lawyers need to be prepared to discuss with their clients.
“When we take on a client, we're making a business decision," she says. "Before we take them on, we want to know that the strategy that we are outlining to them is going to be successful for them. If it's not going to be successful for them, I believe we haven't provided them with the right advice.”
This responsibility is particularly high when the company is from outside the country, or in high-risk sectors like technology or life sciences, or both, says Cheryl. “What is the point of us saying to a company ‘come and do a transaction here' and then have the company fall on its face? I don't think people want to hire lawyers who are just marking up documents—they are paying us to be their advisers.”
Cheryl notes for instance that “AIM tended to be aimless—for a lot of biotech companies it was a dead-end. There are only a handful of long-term success stories.” A better route to the end goal for many such companies (a listing on Nasdaq or the NYSE) is often the TSX, with its proximity to large U.S. investors and the many aspects of filing in Canada that have been structured to fit well with U.S. systems.
“You get one grand entrance into the U.S. market, and you don't want to blow it doing some small offerings,” says Cheryl. “This is a good stopping point if eventually you want to get to the United States, because you start making your fans, you start getting things in place and its not a hard system.”
There are other benefits to the TSX. While Canada is well-supplied with banks and investment dealers, notes Cheryl, there aren’t many emerging companies with a lot of potential. But an increase in foreign listings on the TSX could well give a boost to homegrown business. “I definitely think there will be cross-pollination that will help push the sector along here. That's because companies often want to increase their presence in countries where their stock is listed—that can range from areas like client development to new research and development facilities (supported by Canada's tax incentives) to establishing an office in Canada.”