Skip to main content

Skyscrapers loom over a flagpole carrying the Canadian flag in the financial district in Toronto in this file photo.Mark Blinch/Reuters

Some little noticed legislation is making it much easier for Canadian companies to tap into the massive pool of U.S. wealth.

Since the U.S. government passed the Jumpstart Our Business Startups Act, better known as the JOBS Act, in 2012, small but growing companies have had a much easier time going public south of the border. The U.S. initial public offering market has been scorching for over a year, and over 80 per cent of the companies going public are indeed startups, in that they have less than $1-billion U.S. in annual revenues.

What many people don't know is that the same rules making it easier for smaller U.S. companies to go public also apply to their northern neighbours. "Most companies considering a Canadian IPO will qualify as [emerging growth companies], making them prime candidates for cross-border IPOs," law firm Torys LLP wrote in a new mid-year capital markets report.

"The JOBS Act has significantly lowered the cost of going and staying public in the United States for these companies," the report added.

The legislation's benefits include: being able to reach out to certain institutional investors to see whether they would be interested in an IPO before filing the expensive regulatory documents; scrapping the requirement to have an auditor attest to internal accounting controls early in the IPO process; the right to file confidential IPO documents with the Securities and Exchange Commission, saving companies from putting together lengthy prospectuses that must be approved by the SEC and also publicly released before any discussions of an IPO can commence; and being able to file financial statements under international accounting rules, instead of according to particular U.S. standards.

Those may sound like rather wonky benefits, but they can save boatloads of time and money for companies that test the waters and then realize they don't have the backing they need to go through with their offerings.

The appeal of a U.S. IPO for a Canadian company risks being overstated, however, at least right now. Not only is it typically harder for smaller Canadian companies to go public in the U.S. because that market is so big that it is hard to attract attention, the Canadian IPO market has come to life so there is arguably less need to look south right off the bat.

But even for companies that go public in Canada first, the JOBS ACT makes it much easier to eventually cross-list — especially for companies that have been public here for a year and have $75-million or more worth of shares in public hands, according to Torys.

"Barriers to entry for Canadian issuers are diminishing, including because U.S. investment banks are becoming more comfortable using a Canadian company's existing public disclosure for U.S. marketing purposes," the law firm noted.

There is one area in which it has actually become harder for Canadian companies to raise cash in the U.S.: private placements. Often when a company goes public in Canada they will simultaneously sell some shares to institutional U.S. investors through private placement that come with extra rules, such as requiring the buyer to hold the shares for at least four months.

Before the JOBS Act, Canadian companies had some flexibility and could sell U.S. private placements to both institutional investors and wealthy individuals. The new legislation has cracked down on the latter buyers, so the range of investors for these private sales has shrunk.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe