MaRS Best Practices: Valuations in the cleantech Industry - Tim Babcock

MaRS Best Practices Series

Special Valuation Series Nov. 12th, 2010

MaRS Best Practices Special Valuation Series

Friday Nov 19th 12:00-1:30pm

Tim Babcock Director, Listed Issuer Services TSX Venture Exchange

Rupert Merer Energy Technology Research Analyst National Bank Financial (NBF)

Speakers:

More information and registration at www.marsdd.com/bestpractices

MaRS Tim Babcock, Director, Listed Issuer Services TSX Venture Exchange November 19, 2010

A Capital Opportunity for Clean Technology Companies Listing on Toronto Stock Exchange and TSX Venture Exchange

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Disclaimer

This document is for information purposes only and is not an invitation to purchase

securities listed on Toronto Stock Exchange and/or TSX Venture Exchange or Natural Gas

Exchange. TMX Group Inc. and its affiliates do not endorse or recommend any securities

referenced in this document. Please seek professional advice to evaluate specific securities.

While the information herein is collected and compiled with care, neither TMX Group Inc. nor

any of its affiliated companies represents, warrants or guarantees the accuracy or the

completeness of the information. You agree not to rely on the information contained herein

for any trading, business or financial purpose.

This information is provided with the express condition, to which by making use thereof you

expressly consent, that no liability shall be incurred by TMX Group Inc. and/or any of its

affiliates as a result of any errors or inaccuracies herein or any use or reliance upon this

information.

© 2010 TMX Group Inc.

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1. TSX and TSXV – The 3 Minute Overview

2. The Clean Technology Sector

3. Structure Tools for Entrepreneurial Finance

4. Case Studies

Outline

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(53.8% Ownership)

(47% Ownership)

(19.9% Ownership)

Data

Energy

Deriva-ves

Fixed Income

Equi-es

• Canada’s financial system has

been ranked as the soundest in the world for two years in a row by the World Economic Forum

• Lowest debt-to-GDP among G7

• Relatively strong financial

position: – 12 years of surpluses

1998-2009

• Significant resource base

Strong fundamentals in Canada

TMX Group is a Multi-Asset Class Market Leader

(51% Ownership)

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General Conditions YTD September 2010: Key Markets

TSX/TSXV LSE/AIM NYSE/AMEX Euronext (US)

Nasdaq ASX Hong Kong Exchanges

Number of Issuers Listed

3,628 2,978 2,314 2,805 1,966 1,365

Quoted Market Value (US$ Billions)

1,867.6 3,467.6 12,278.4 3,480.7 1,318.6 2,536.0

New Listings 370 113 78 157 69 58

Equity Capital Raised (US$ Billions) 32.6 41.1 66.9 4.7* 25.4 42.8

Value Traded (US$ Billions) 993.2 2,123.3 13,794.6 9,998.0 786.1 1,027.6

Broad Stock Market Indexes (%Change over Sept 30 2009)

8.5% 8.9% 5.4% 11.6% -2.2% 7.0%

*NASDAQ Information does not include secondary financings Source: Exchange Websites, World Federation of Exchanges, (TMX analysis of public information)

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TMX Group’s Equity Exchanges Support a Diverse Issuer Base

Number of Issuers by Sector

Includes issuers on Toronto Stock Exchange and TSX Venture Exchange (100% = 3628)

As at September 30 2010

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Access to Capital: 2009 was an all time record year for financing on TSX

*TSX Venture Exchange commenced operations on November 29 1999

Toronto Stock Exchange and TSX Venture Exchange Total Financings (C$Billions) 1999 – 2010 September

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2,143 companies 27 graduates in YTD Sept 2010 20 graduates in 2009 45 graduates in 2008

1,485 companies

TSX Venture Exchange

• Access to capital for earlier stage companies or smaller financings

• Total market cap of $48.5 Billion & average market cap of $22.6MM

• Cost effective stepping stone for international companies looking to list on a quality North American market

• Exchange mandate to mentor management of newly public companies

• Streamlined graduation to TSX when senior market requirements are met

• 103 year history

Toronto Stock Exchange

• Senior market for well established businesses and management teams with experience in public markets

• Total market cap of $1.9 Trillion & average market cap of $1.3B

• 30% of TSX issuers >$500M are interlisted on a US exchange

• Access to larger, more international institutional investors and greater analyst coverage

• Globally visible specialized indices

• 157 year history

Unique Equity Market Structure

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TMX Group Serves Companies at all Stages of Growth

Market Capitalization Toronto Stock Exchange and TSX Venture Exchange

Unique feeder system

478 graduates + 93 M&A*

*From January 1, 2000 – September 30, 2010

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Toronto Stock Exchange issuer base: 1,485 issuers, ~$1.9 trillion market cap TSX Venture Exchange issuer base (excludes NEX): 2,143 issuers, ~$48.5 billion market cap

As at September 30, 2010

473 Issuers

549 Issuers

463 Issuers

1922 Issuers 191

30 Issuers

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TMX Group Global Leadership Strengths

All data is as of or YTD September 30, 2010

1480 issuers

55% of the world’s public mining companies

140 going public events $9.8 B equity raised

$305 B value traded

128 issuers

Number one in the world by number of public clean technology companies

8 going public events

$1.1 B equity raised $7.6 B value traded

3628 issuers

370 going public events

$33.7 B equity raised

Average Financing: TSX $51.9 M TSXV $3.5 M

468 issuers

Over 35% of the world’s public oil and gas companies

44 going public events $8.2 B equity raised

$204 B value traded

Mining

Energy & Energy Services

Clean Technology

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4. Case Studies

Outline

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Clean Technology Market on TSX and TSXV

128 Companies

30% of TSX Issuers in the Sector

Graduated TSXV

$17B

Total Market Cap

$1.1B

Equity Capital Raised

As at and YTD Sept 30 2010

8 New Listings

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Clean Technology Financing by Subsector

As at and YTD Sept 30 2010

Of the $1B+ in equity capital raised year to date this is how the funds have broken down by subsector on TSX ($943M) and TSXV ($152M)

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Strong Growth in Key Market Metrics

Analyst Coverage

Avg. Analyst Coverage for Clean Technology Companies by Market Cap

Strong analyst coverage combined with growth in trading and liquidity provides posiMve market fundamentals for Clean Technology companies to finance and grow.

Market Capitalization (C$ Millions) 150-500 >1000 50-150 <50 500-1000

Source: Capital IQ, June 2010

Volume of Shares Traded

Millions of Shares Traded in the Clean Technology Sector

2005 2009 2007 2008 2006

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TSX Venture 50® - Clean Technology Top 10

TOP 10 CLEAN TECHNOLOGY COMPANIES

341% One-year Average Market Cap Growth

236% Average ROI in 2009

542 Million Volume of Shares Traded in 2009

2 Average number of analysts covering the Top 10

TSX Venture 50® is a ranking of strong performers on TSX Venture Exchange. These emerging companies have seen tremendous growth over the past year, offered remarkable return to their shareholders, are actively traded in the market and are well-covered by the analyst community. In short, they have proven themselves to be the rising stars of Canada's public markets.

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CONSTITUENTS

Algonquin Power & Utilities Corp. (AQN)

ATS Automation Tooling Systems Inc. (ATA)

Azure Dynamics Corporation (AZD)

Ballard Power Systems Inc. (BLD)

Boralex Inc. (BLX)

Boralex Power Income Fund (BPT.UN)

Brookfield Renewable Power Fund (BRC.UN)

Burcon NutraScience Corporation (BU)

Cascades Inc. (CAS)

Capital Power Income LP (CPA.UN)

5N Plus Inc. (VNP)

Westport Innovations Inc. (WPT)

S&P/TSX Clean Technology Index

Launched in March 2010

The S&P/TSX Clean Technology Index

Measures the performance of

companies listed on TSX that generate upwards of 50% of their revenue from

products or services focused on reducing

or eliminating negative ecological impacts, while at the

same time improving the

productive and responsible use of natural resources.

GLV Inc. (GLV.A)

Innergex Renewable Energy Inc. (INE)

Macquarie Power & Infrastructure Income Fund (MPT.UN)

Magma Energy Corp (MXY)

Newalta Corporation (NAL)

Northland Power Income Fund (NPI.UN)

Plutonic Power Corporation (PCC)

Ram Power Corp. (RPG)

RuggedCom Inc. (RCM)

Tembec Inc. (TMB)

WaterFurnace Renewable Energy Inc. (WFI)

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4. Case Studies

Outline

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Benefits of Going Public

Access capital and

future financing

opportunities

Facilitate

growth

Increase visibility

and prestige

Provide liquidity

for shareholders

Create employee

incentive

mechanism

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Methods for Going Public on Toronto Stock Exchange or TSX Venture Exchange

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Capital Pool Company™ (CPC) Program has a Strong Track Record

Since inception: • Over 2095 CPCs were created • 80% have completed their QT – over 1660 companies

• 332 TSXV Graduates now trade on TSX • 96 of the grads were CPCs • 7 of 9 new Clean Technology listings in 2009 were QTs

• A new clean CPC shell has none of the hidden costs of a shell with previous operating history

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Benefits of the CPC Program for Small Companies

1. Cash on the Balance Sheet;

2. Potential to identify Directors and Long-term Investors;

3. At least 200 Public Shareholders to create liquidity;

4. Listing Process can be faster and less costly.

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CPC Acquires Business (QT)

Public Financing and CPC Trades

Seed 24 Months Maximum

Capital Pool Company: Process

Aftermarket and Growth

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Seed Financing • seed financing of the company by 3-5 Founders/Directors

CPC IPO • a prospectus offering to create a corporate vehicle with

public distribution

Qualifying Transaction (QT) • a target business is identified, disclosed and acquired

Aftermarket and Growth • company trades and executes its business plan

Capital Pool Company: Milestones

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Public Financing and CPC Trades Seed

24 Months Maximum

Qualifying Transaction

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Considerations for a Qualifying Transaction:

• Significant growth opportunity & reason to be public

• Strong & coachable management

• Capital needs: $2+ Million

• Close to or at commercialization

• Meets minimum listing and audit requirements

• Stock options and acquisition currency

• Strong market appetite

• 12 to 18 month cash requirements (can be financed)

Selecting a QT Candidate

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Consider this…

Success Factors:

• Lots of cash on closing

• Market interest and understanding

• Deliver in short term post closing

• Reasonable valuation – not always maximum valuation

Potential Pitfalls:

• Listing requirements shortfalls

• Insufficient cash/working capital on closing

• Valuation versus escrow regime (TSXV Policy 5.4)

• PIFs - timing and impact on circular

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Public Financing and CPC Trades Seed

24 Months Maximum



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Consider this…

Success Factors:

• Press release clarity / quality

• Broker management and support

• Timely disclosure against published milestones (good and bad)

Potential Pitfalls:

• Orphan status

• Mistrust of management’s willingness to communicate

• Market fluctuations

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Toronto Stock Exchange and TSX Venture Exchange listing fees are competitive

Min and Max Initial Fees (C$000s)

*There is no maximum fee. Market cap of $1B was used for illustration purposes **NYSE has a USD $500,000 cap on listing fees per issuer, per year ***Does not include NOMAD fees NB: For international companies, TSX initial listing fees max out at $150K

Source: TSX analysis of exchange listing fee documents. As at August 25, 2010

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Min and Max Sustaining Fees (C$000s)

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TSX and TSX Venture Exchange Estimated Listing Costs

Toronto Stock Exchange TSX Venture Exchange

Listing Fees $10,000 - $200,000 $7,500 - $40,000

Accounting and Auditing Fees $75,000 - $100,000 $25,000 - $100,000

Legal Fees $400,000 - $750,000 $75,000+

Underwriter’ commission 4 – 6% Up to 12%

Other fees to consider include:

• Securities Commissions fee

• Transfer agency fees

• Investor relations costs

• Geological or engineering reports

• Printing and translation costs

• Valuation reports

• Director and Officer liability insurance

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4. Case Studies

Outline

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BioExx Specialty Proteins Ltd. Technology company focused on the extraction of oil and high-value proteins from oilseeds for the global food market. #1 Ranked Clean Technology Company and “Pick of the Street” - 2010 Venture 50TM

Date of Listing Graduated from TSX Venture Exchange to Toronto Stock Exchange on January 22, 2010

Market Capitalization

$273.1 million as of June 30, 2010

Analyst Coverage 7 Canadian Analysts / 1 US Analyst (Source: CapitalIQ)

Financing, Price & Trading Volume

History (Sept’06 – June’10)

*(Source: Capital IQ)

BXI

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Catch the Wind Based in Manassas, Virginia, Catch the Wind develops, manufactures, and sells laser based wind sensor systems for the wind power generation industry in the United States. One of the Top 10 Clean Technology companies – 2010 Venture 50TM

Date of Listing Listed on TSX Venture Exchange through the CPC Program on April 3, 2007 Completed Qualifying Transaction on September 23, 2008

Financings $5.2 million by Private Placement in April 2010 $21.8 million by Private Placement in May 2009 $15.7 million raised at time of Qualifying Transaction in September 2008

Market Capitalization

$86.3 Million as of June 30, 2010 based on 57.5 million shares outstanding

Analyst Coverage 4 Canadian Analysts (Source: Capital IQ)

Price and Trading Volume

(Sept’08 – June’10) *(Source: Capital IQ)

CTW

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China Annie Tao 416 947-4273 [email protected]

Diversified Industries Raymond King 416 947-4675 [email protected]

United States Tala Zarbafi 416 947-4636 [email protected]

Energy Cindy Gray 403 218-2822 [email protected]

Mining Greg Ferron 416 947-4477 [email protected]

Clean Technology Robert Peterman 416 947-4305 [email protected]

Economy & Finance

MaRS Best Practices: Valuations in the cleantech Industry - Tim Babcock