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NEO: A Year in Review and the Road Ahead

2019 Marked the Rebirth of SPACs

Early February may seem a bit late to look back at the year we had in 2019 at NEO, but I purposely held back to see how 2020 would start, and whether the growth we experienced last year would be sustained… and it has been!

Trading on NEO Exchange

From a trading perspective, 2019 saw our market share across all Canadian listed securities hit 10.5% in December, a growth of 1.5% since the beginning of last year. We locked in growth across the board, with a noticeable uptick in TSX-listed securities.

Quality of execution continues to be the hallmark of trading on NEO.  We clearly see opportunities for further growth and have multiple initiatives on the go to give an increasing number of investors in Canadian-listed securities the benefit of better-quality executions.  January 2020 confirmed this growth, with our market share hitting just south of 12%!

Listings on NEO Exchange

2019 was a break-through year on the listings front. We continued to compete head-to-head with the TSX on ETFs and Closed End Funds, moving the full portfolio of NEO-listed funds to 75. In the corporate listings space, we expanded our footprint and reached the milestone of 10 corporate listings.

I would like to highlight a few notable elements about the corporate listings we secured in 2019:

  • NEO facilitated over CAD $1.5 billion in initial public offerings in 2019, ranking us on par with the TSX and well ahead of the Canadian venture exchanges.
  • Our first corporate listing with a market capitalization north of CAD $1 billion was Columbia Care Inc. [NEO:CCHW].
  • Halo Labs [NEO:HALO] hit a number of record setting volume days. The company experienced its biggest volume day in November when over 9 million shares traded across NEO and the various foreign OTC platforms where it is also available for trading.
  • We listed a 6th Special Purpose Acquisition Corporation (SPAC) on NEO, clearly demonstrating our Canadian leadership in this space and highlighting our unparalleled capability to enable innovative offerings.
  • We welcomed a second SPAC listing from Mercer Park, the players who listed the first ever Cannabis SPAC on NEO. The Mercer Park Brand Acquisition Corp. [NEO:BRND.A.U] raised close to CAD $550 million.
  • We listed the largest SPAC IPO in Canadian history, when Subversive Capital Acquisition corp. [NEO:SVC.A.U] raised close to CAD $750 million.
  • We listed the first ever dual-listed SPAC between NEO and Nasdaq, Merida Merger Corp. I [NEO:MMK.U], who wanted to leverage the market depth of both the Canadian and US capital markets.

2020 started with another large SPAC IPO when Subversive Capital returned with their Real Estate Acquisition REIT LP [NEO:SVX.UN] and raised over CAD $260 million in January.

Based on our pipeline, the NEO listings business is on track for further growth this year as SPACs are here to stay and grow, and we are lining up some exciting new lighthouse corporate listings.

NEO Market Data

In the area of access to market data, we continue to live up to our values of doing what is right for the investors.

Market data for all trading on NEO remains free for all retail investors, and no market participant – professionals or otherwise – is charged fees for NEO listed securities. We continue to champion the need for a true and affordable consolidated market data solution in Canada, and the lack of one remains a black eye on our capital markets. And we continue to diligently monitor any new data vendors to ensure the availability of NEO-listed market data everywhere, because we also care about doing what is right for capital-raisers.

Anticipate some new disruptive initiatives from us over 2020!

NEO Connect

NEO Connect is a distribution platform for assets not listed on a stock exchange. By allowing for these assets to be traded and held on-book in the exact same way as exchange listed securities, we enable the seamless integration between parties seeking to raise capital and their investors:

  • For capital-raisers, NEO Connect provides distribution and access to investors. At the same time, we reduce the operational burden, costs and risks typically associated with assets that are not listed on a stock exchange.
  • For investors, we provide a centralized and efficient way to invest in these assets. They can easily monitor the prices of these assets (market data is available at no cost through some of the major data distributors), and they can easily track their positions in these assets, as they are fully integrated into equity trading tools and portfolio management systems.

In 2016, we launched NEO Connect to enable the purchase and redemption of mutual funds, public and private, known as Platform Traded Funds (PTFs). And by 2019 we reached multiple new milestones. We have over 20 actively participating IIROC dealer firms, the first participating MFDA dealer firm, over 60 PTFs offered by 11 different asset managers, and we reached close to CAD $1 billion of capital raised.

At the end of 2019 we launched DealSquare, a new private placements platform.  In partnership with Silver Maple Ventures and powered by NEO Connect, DealSquare provides investors, investment advisors, dealers and capital-raisers with a 21st century solution when using private funds and provides us an avenue to start facilitating private placements in corporations long before they go public.

In January 2020, Silver Maple Ventures itself became the first company to list on DealSquare.

We anticipate major growth in the private markets over the coming years.  DealSquare is a first mover in the space, offering the only front-to-back solution focused on private markets in Canada. It supports the entire private placement process from marketing investment opportunities and electronically managing the due diligence and subscription process, through to efficiently closing the deal.  By utilizing NEO Connect technology, exempt securities are seamlessly integrated into client accounts and back office systems.  We are very proud to be part of the growth in private markets, playing an important role in opening up private market investing opportunities to all investors in the true spirit of democratization. Everyone should have the ability to access these wealth generating opportunities.

Zooming in on SPACs

Special Purpose Acquisition Corporations, or SPACs for short, have been around for a while but 2019 saw a clear re-emergence of this vehicle both in the US and in Canada. NEO quickly became the Canadian stock exchange of choice for these vehicles because we both believed in their benefits and enabled them to come to market in the cannabis space.

A SPAC is a publicly listed company that has raised cash from investors to take another company, or combination of companies, public. A SPAC typically defines the types of targets it is considering and ensures its management team has the right experience and expertise to achieve the stated objectives. Investors are protected as all cash raised is held in escrow and will be returned if no qualifying transaction is completed within a certain timeframe. In addition, investors have an opt-out option if they do not support the transaction the SPAC decides to pursue.

The smallest SPAC listed on NEO in 2019 raised north of CAD $150 million, which provides an indication about the size of transactions SPACs are focused on.

SPACs are particularly interesting during periods of instability and/or for companies in an emerging and volatile industry, such as the cannabis industry, where the risks of a classic IPO are high. 2019 exemplified the challenges of classic IPOs across the board, both in Canada and the US. We can expect this to be the new normal in the years to come, further fueling SPAC opportunities both in the cannabis industry and across a spectrum of other sectors.

For a SPAC to be successful, a number of key conditions are required of the management team:

  • They must have relevant experience and expertise in the industry the SPAC will pursue, with the capability to identify high quality targets with attractive growth opportunities;
  • They must understand the ins and outs of operating a public company that will result from the qualifying transaction, as well as the regulatory framework within which it operates, particularly in an industry as complex as cannabis;
  • They must possess a deep understanding of the capital markets in order to structure the right transaction and be able to leverage the capital markets again to fuel future growth;
  • Once the qualifying transaction is done, the management team of the new public company must continue to have the skills and capabilities deemed critical at the level of the SPAC; and
  • They must realize that when a company goes public through a SPAC transaction, investor marketing is just as critical as with a classic IPO. Without it, a resulting public company can end up as an orphan stock, unknown to the investor community.

The market environment that we find ourselves in today will fuel the further growth of SPACs. At NEO, we have developed unparalleled experience in this space and don’t limit ourselves to a simple “check the box” when a company files an application.  Unlike typical stock exchanges, we share our experience, provide recommendations and suggestions, and are always looking for solutions rather than problems.

2019 was a great year and we are excited to execute upon our 2020 plans. All of this would not be possible without the NEO team, our partners, our friends and all those who always believed in us and our mission. Thank you and rest assured we will continue to hold true to our values and remain focused on innovation and the need for competition to drive better Canadian capital markets!

Jos Schmitt

President & CEO, NEO Exchange