Canada tech stocks outshine U.S., sending firms to equity market

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Canadian technology companies have been making multiple trips to the equity market to capitalize on a rally in tech shares that’s helping them raise cash at ever-higher valuations.

Dye & Durham Ltd., which makes software used by law firms, took advantage of a more than sixfold rally in its shares since its July IPO to raise $500 million (US$394 million) in a bought deal of stock and convertible debentures, the company said Tuesday.

Toronto-based Dye & Durham, which went public at $7.50 a share last July, received $50.50 per share in the private placement. It also issued shares in September, November and December last year. Peers including Lightspeed POS Inc. and Docebo Inc. have made similar moves to hit the market.

Canada’s S&P/TSX Information Technology Index has risen 82 per cent in the past year, as of Tuesday’s close, fueled by rallies in Lightspeed and Shopify Inc. That compares with a 36 per cent advance for the U.S. S&P 500 Information Technology Index.

Dye & Durham fell 5.9 per cent to $46.12 at 1:48 p.m. Wednesday in Toronto, bringing its decline to more than 12 per cent since announcing the new issue.

Shares of technology companies have gained since the onset of the pandemic as their corporate customers turned to cloud-based applications to support their remote workforces, said Anurag Rana, an analyst at Bloomberg Intelligence. The technology sector was one of the few places investors could look for growth during the crisis, with huge swaths of the economy including retailers, restaurants, airlines, hotels and casinos hammered by lockdowns, he said.

“Issuers and private-equity investors are not stupid, and they know somewhere down the road that valuations may come back,” Rana said. “So this is the time when they sell.”

Those gains are giving early investors in tech companies an opportunity to take some profits. In conjunction with Dye & Durham’s private deal announced Tuesday, some investors agreed with the underwriters to sell 1.98 million shares at the $50.50 price as well.