Beating a Path to Toronto's Exchanges

As the dollar declines and commodities surge, more U.S. companies are listing their shares in Canada

by Ben Levisohn

Browse Issues

Browse the BusinessWeek Archive

Story Tools

• post a comment
• e-mail this story
• print this story
• order a reprint
• digg this
• save to del.icio.us

The weak dollar and looser rules have lured U.S. outfits to Toronto's exchanges Aaron Harris/Bloomberg News

Houston's Northstar Healthcare operates surgical centers across Texas. But when the company, which has annual revenues of $39 million, decided to go public last year, it ventured north of the border to the Toronto Stock Exchange. "We would be under the radar in New York," says Donald Kramer, Northstar's chief executive.

Companies like Northstar, which are finding it hard to raise money in the U.S. these days given the faltering economy and weak stock market, increasingly are selling their shares in Canada. Last year, TSX Group, including both the 150-year-old Toronto Stock Exchange and the related TSX Venture Exchange, gained 109 net new listings, 18 from the U.S. By comparison, NYSE Group saw its total rise by just 17, while the Nasdaq lost 64. TSX is the second-largest exchange by listings but No. 8 by total market value.

What's the appeal? Canada's stronger economy and currency certainly help. The Canadian dollars raised up north can be used to buy assets or businesses denominated in greenbacks. If the U.S. dollar keeps falling against the loonie, firms ideally will be able to stretch their funds further.

The regulatory environment in Canada can also be less rigorous. Although companies must meet certain requirements to list in Toronto, TSX varies the rules depending on the size and shape of the company, giving smaller outfits more flexibility.

Of course, the U.S. businesses heading to Toronto aren't exactly the marquee names of the corporate world, like Visa, whose $17.9 billion public offering on the NYSE in March was the largest ever in the U.S. For one, most of the companies operate in sectors related to commodities, which dominate the Canadian economy. TSX is home to 44% of the world's mining companies and 51% of the energy outfits. That's why General Moly, a Lakewood (Colo.) mining firm, decided to cross-list on the American Stock Exchange and TSX in February, 2007. "Toronto is the hub of research in mining," says Seth Foreman, head of investor relations at General Moly. "There's a lot of banking and institutional investors with an interest in mining up there."

The eight-year-old TSX Venture Exchange has looser regulatory requirements than its older sibling, making it a haven for upstart U.S. biotech, technology, and health-care companies. The average listed company on the exchange has a market capitalization of $27 million. South of the border, the tiny outfits likely would have had to seek money from private equity investors. Robert Pico, CEO of Opel International, a solar cell maker, thought he'd have more freedom to decide the direction of the business by going public in Toronto vs. the traditional VC route in the U.S.: "Venture capitalists spend a lot of effort making sure you run the business to their satisfaction."

Still, it remains to be seen whether Toronto can establish itself as the go-to place for the world's biggest companies, in any industry. The average market cap on the TSX is $1.4 billion, vs. $10.1 billion for the NYSE. The worry is that businesses may just see Canada as a rest stop on their way up the stock market ladder. "As soon as companies do something special, they'll list on the NYSE or Nasdaq," says Laurence Booth, a finance professor at Toronto's Rothman School of Management. In the long run, "Toronto will become even more of a regional exchange."

Levisohn is a staff editor at BusinessWeek covering finance and personal finance.