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If retail investors are truly starting to pile back into equity markets, could a wave of initial public offerings be far behind? A significant return of average investors suggests a possible second leg to the four-year-old bull market – and if so, watch for 2013 to be a breakout year for Canadian IPOs. Of course, the warning would remain the same as it always has for IPO investors: caveat emptor.

IPOs tend to follow the money, coming to market when valuations are buoyant and demand from investors for new issues is higher. And there's nothing like successful IPOs to breed more IPOs. So, barring a serious correction, anxious investors who have missed much of the gains since 2009 are likely to be hungering for new investment opportunities following last Friday's successful IPO of Pfizer's animal health business Zoetis Inc. , and the hot debut two weeks earlier by Norwegian Cruise Line Holdings Ltd. Of course, the converse is true: months worth of IPO plans can be quickly shelved when markets go south or a big new offering goes thud, as happened with Facebook Inc. last year. (Full disclosure: I own shares in Facebook.)

Meanwhile, the situation in Canada is heating up. Last year, just 12 new issues on the TSX raised a measly total of $1.7-billion , down from 25 IPOs and $5.1-billion two years earlier. But three of the year's biggest deals – Hudson's Bay Co., mining concern Ivanplats Ltd., and Regal Lifestyle Communities Inc. – accounting for half of the year's tally, happened in the fourth quarter, and investment bankers expect the momentum to continue.

"We think the IPO pipeline today is as healthy as it has been in years," said Dan Nowlan, CIBC's managing director and co-head of equity capital markets. "The velocity of the conversations has increased in the last year or so."

With corporate Canada generally flush with cash, the likeliest sellers would be private-equity owners who tend not to be long-term investors, and many of the offerings would likely be structured to satisfy yield-thirsty investors. In-demand real estate investment trusts are already in the works, but expect companies that delayed or pulled IPOs in recent years to also return.

Porter Airlines Inc., part-owned by private equity interests, would be a likely candidate to go public after it pulled its IPO plans in 2010. Likewise, long-rumored IPO candidate Bombardier Recreational Products, owned by Bain Capital, the Caisse de dépôt et placement du Québec and the Bombardier family, would be expected, particularly if the U.S. economic turnaround continues. A sustained upturn would spell good news for suppliers to the U.S. housing or automotive markets, including several companies in Onex Corp.'s private equity portfolio. Another name to watch is Aritzia LP, a hot B.C. women's fashion retailer that has more than doubled its store count to 47 since private equity owner Berkshire Partners bought the company in 2005.

Meanwhile, all eyes in the oil patch are o n two private companies, Laricina Energy Ltd. and Osum Oil Sands Corp. Laricina in particular has been vocal about its desire to go public for some time, and CEO Glen Schmidt said in an interview the company expects to be in a position to proceed by the end of this year. "I think in 2013 we'll be ready for public markets," he said. "But public markets have got to determine whether they'll be ready for us."

If the money keeps flowing, ready they will be. The bigger question is whether investors are ready for the effect all of this hot money will have on the market overall.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:15pm EDT.

SymbolName% changeLast
CM-N
Canadian Imperial Bank of Commerce
+1.3%50.72
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67
NCLH-N
Norwegian Cruise Ord
-1.92%20.93
PFE-N
Pfizer Inc
-0.11%27.75
ZTS-N
Zoetis Inc Cl A
+0.42%169.21

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