There are no two ways about it: 2023 was not a good year for Canadian IPOs.
There were 21 corporate IPOs in total across three of the country's stock exchanges (the Toronto Stock Exchange (TSX), the TSX Venture exchange and the Canadian Securities Exchange) - excluding listings of capital pool companies (CPCs), special purpose acquisition corporations (SPACs), ETFs and closed-end funds - last year, according to data collected by CPE Analytics. Only one of these was carried out on the TSX: the IPO of Lithium Royalty Corp, which in March 2023 went public with a valuation of C$150 mn ($110 mn).
What made a difference for the revenue-focused firm that specializes in acquiring royalties on lithium assets worldwide was its business model, says the firm’s president and CEO Ernie Ortiz. ‘What’s unique about our business model is that it’s very capital-light. As a royalty company, we have no exposure to operating costs for capital expenditures,’ he tells IR Magazine.
By acquiring lithium royalties, the firm gets a proportion of the revenue in perpetuity on high-grade, low-cost assets across the globe. ‘Royalty companies tend to benefit from Ebitda margins that are 70 percent higher – so having that capital-light, high-margin business model was another important attribute for our story that was perhaps unique then,’ adds Ortiz.
‘If you marry that with the powerful theme of electric vehicles and the lift in demand, I think those were very significant tailwinds for our success.’
A good story, a solid team, a good trajectory and a business model that works well even in challenging macroeconomic conditions were enough for the Toronto-headquartered firm to buck last year’s zero-IPO trend on the country’s stock exchange.
‘A novel experience’
Founded in 2018 having garnered support from high-net-worth individuals and investors, Lithium Royalty quickly established revenue streams through strategic transactions, says Ortiz. Today the firm boasts a portfolio of 35 royalties. Last year’s IPO was necessary for the company to grow capital and start expanding both its royalties portfolio and its investor base.
‘As a private company for five years, we had mostly exhausted our capital base and we still saw a considerable runway for growth and opportunities in the lithium sector – specifically for royalties,’ explains Ortiz. ‘That was the main reason we wanted to pursue the IPO and we believe we’ve executed that successfully.
‘After the IPO, we were able to acquire six royalties and it was one of the busiest periods for our company. Even at other royalties companies, 2023 was a very active year.’
Moreover, the influx of capital enabled the acquisition of royalties, with most of the investment in 2023 expected to yield production from the assets in 2024.
Navigating the IPO process, which started in 2022, was a demanding yet rewarding experience for Ortiz, who had already experienced the process in previous tenures, but never in an executive officer position.
‘I had been in sell-side, equity research and buy-side roles, where the IPO-related work was mostly centered on conducting due diligence and writing research reports,’ he recalls. ‘This was a novel experience for me, a very demanding but highly rewarding process. The IPO work has multiple work streams and we conducted more than 150 meetings in preparation for the public offering, all while managing the business and attending industry conferences.’
The key to successfully navigating such a demanding process was establishing the IR function and finding the right partners. While Lithium Royalty already had a track record of marketing experience as a private company and successful engagement with its private investors, it soon realized things as a public company were going to be different – and setting up an IR team was the first step to meet the requirements of an expanded investor base.
‘You must engage with a different set of investors and answer different questions and concerns, so establishing the IR function was necessary at the time of the IPO,’ Ortiz explains. ‘Fortunately for us, the person we brought in to lead the IR function was someone who had already been helping the firm at the beginning, so she was familiar with our overall business model, approach and team dynamics.’
External assistance
Ortiz notes that in addition to setting up an internal IR team – which has since grown to have two IR practitioners alongside his and other key company members’ involvement – Lithium Royalty was supported by external firms that helped it with the overall branding, marketing, presentations and crafting an impactful story properly tailored to its growing investor base.
Sharing some advice on how to select the right partners to support an IPO, Ortiz suggests companies talk to firms within their network while ensuring they carry out due diligence and find ‘like-minded partners’.
‘We conducted our due diligence and we did speak to several [firms], interviewed them and made sure they would be the right fit,’ he says. ‘We asked them to provide us with case studies and examples of what they had done for other firms. We ended up hiring some firms that helped us with design materials and a few others that helped us with website implementation and overall presentation optimization.’
A strong team of both internal and external professionals, ranging from legal to banking and commercial partners, was crucial for Lithium Royalty to build the proper infrastructure to deliver the IPO. During the IPO roadshow, investors’ questions focused on the company’s growth, competition and track record.
‘I think, generally, investors have an understanding of our assets and are acquainted with the overarching growth pattern and trajectory of lithium, given the rapid expansion of electric vehicles and their anticipated growth,’ says Ortiz. ‘So overall we were able to successfully walk investors through why we believe we have a competitive advantage.’
Moving forward
Since the IPO, Ortiz says investor questions have evolved but remain focused on growth and the company’s ability to source and execute attractive deals. As for company challenges since listing, investor targeting is the top hurdle so far.
‘I think the key thing is probably investor targeting because you have to reach the right investor but also at the right time, especially for something like lithium and the year it had in 2023, where prices had significant headwinds,’ Ortiz says.
‘It’s about finding investors that are open to the story and the commodity and to various macroeconomic factors that would be favorable to Lithium Royalty. I think that’s been the biggest challenge, but we see a lot of opportunities to get our story out there.’
Looking back on the IPO and offering advice to peers who may soon be embarking on the IPO journey, Ortiz says getting started early and choosing the right contacts is crucial to success.
‘I would say spending time crafting the prospectus and getting to know the right data but also taking time to put together the right message are all important,’ he advises. ‘As for finding the right partners, that would make a massive difference. Find people who want to know your story and can advocate for your company and help you get the right message out there.’
