The Going Public Alternative

Since 2023, publicly listed Canadian senior living companies¹ have generated strong returns for investors and have been some of the best performing issuers in Canada’s public real estate sector. With an aging population and limited supply of senior housing alternatives, demand for senior housing is expected to continue to grow well into the future. Against this backdrop, we anticipate opportunities for senior living businesses to go public in Canada. This article explores the benefits of going public, provides an overview of the key considerations in going public, and summarizes the timeline and process for going public.

Benefits of Going Public

Public companies enjoy significant benefits, including:

• Improved access to capital. Public companies have a broader range of financing alternatives and sources of capital available to them and better access to capital than private issuers. As a public issuer, a senior living company may issue a variety of securities to raise capital including common shares, preferred shares, and debt securities. Public entities also have the advantage of being able to raise capital from retail and other investors that are only eligible to purchase securities of public entities. Public entities also enjoy the ability to issue securities as currency to pay the purchase price for acquisitions, improving their ability to complete strategic mergers and acquisitions.
• Benefits to sponsors. Going public provides a sponsor with an opportunity to liquidate a portion of their investment in the business and bring in new sources of capital to fund its growth and expansion. Following an initial public offering (IPO), sponsors may sell down ownership over time to diversify their investments and transition ownership to public investors. Sponsors can often retain significant influence over the business following an IPO depending on the level of retained ownership and governance arrangements.
• Increased public profile.  As a public issuer, a senior living company can expect increased public awareness of their business and brand and an enhanced public image.  This may provide a competitive advantage over private operators in attracting residents and competing for employees.
• Ability to attract and retain key personnel. Public entities can issue share-based compensation to attract and retain key executives and employees. Employee share purchase programs can be implemented to build a sense of ownership among employees and align their interests with shareholders.
• Higher valuations. As a public issuer providing fulsome financial and other disclosure on its business and operations, senior living companies often attract higher valuations than private operators.

Key Considerations in Going Public

The following is a summary of some of the key considerations in determining whether to pursue an IPO:

• Board and Management. Of critical importance to the success of an IPO is the quality and experience of an issuer’s board and management team. Both the board of directors and management should possess the right blend of experience and skills to operate a public company. A public company’s board of directors should be majority independent and collectively possess experience in audit/accounting, governance and the senior living or real estate industry. Due to the heightened complexity and importance of financial reporting for public companies, a strong chief financial officer and accounting team is an important factor for investors and the success of an IPO. 
• Asset Composition.:  Public real estate issuers typically prefer to own stabilized assets that generate positive cash flow to pay dividends to investors. While a moderate level of development activity is typical for public senior living issuers, companies that own properties that require significant redevelopment, lease-up of tenants, or high capital expenditures, may not be appropriate candidates for an IPO.
• Recent Financial Performance.  Issuers going public are required to provide at least two years of historical financial disclosure and often include disclosure on the performance of the business prior to the IPO (typically a period of three to five years leading up to the IPO).  It is very beneficial for an IPO if this disclosure shows positive trends and growing profitability.
• Growth Strategy. A clearly articulated growth strategy is a key factor in the success of an IPO and plays a significant role in marketing an offering.  Investors generally want to see a clear strategy to grow the issuer’s asset base and increase profitability and cash flow over time.
• Market Conditions.  Generally, IPOs require strong markets where investor confidence is high.  In planning an IPO, it is important to evaluate the state of the markets and aim to launch marketing during a favourable market window.

Executing an IPO

Planning and executing an IPO is a complex process and requires significant advance planning to complete successfully. The IPO process breaks down into three key stages: (1) planning and preparation; (2) prospectus filing and regulatory review; and (3) marketing and closing.  The following is a summary of the timing and key matters for each stage of the process:

• Planning and preparation.  This stage lays the foundation for a successful IPO and occurs prior to filing a preliminary prospectus. Timing for this stage will vary by issuer but typically occurs over a three- to six-month period prior to filing the preliminary prospectus. The following matters are addressed during this stage:
  • Advisors are retained: Forming an IPO working group with expert advisors is critical to the IPO process.  These advisors include legal counsel, investment banking professionals (underwriters), accountants and often other advisors including roadshow/investor relations consultants and compensation consultants.
  • Financial statement disclosure is prepared: The preparation of historical financial statement disclosure satisfying the requirements of Canadian securities laws is often one of the longest lead-time items to prepare for an IPO.  Historical annual and interim financial statements must be prepared for the business in accordance with International Financial Reporting Standards (IFRS) covering the prior two fiscal years (audited) and most recently completed interim periods (reviewed). In addition, a detailed narrative discussion of those financial results, known as management’s discussion and analysis (MD&A), must be prepared for inclusion in the prospectus.
  • Review of internal controls: An assessment of the issuer’s internal controls and accounting systems is an important part of the preparation for an IPO.  Often, the move from a private to public and the commensurate increase in complexity of financial reporting necessitates an enhancement of an issuer’s accounting systems and internal controls to meet public company financial reporting obligations.
  • Due diligence review:  A key function of the underwriters and their legal counsel in the preparation for an IPO involves conducting a thorough due diligence review of the issuer. To facilitate this process, the issuer and its legal counsel will prepare a data room containing the issuer’s key legal and other documents. For real estate issuers, the underwriters typically require updated environmental reports, property condition reports and appraisals on the issuer’s properties so adequate lead time should be built into the process to allow these reports to be prepared prior to the launch.
  • Structuring and tax planning:  This stage will involve tax planning for the IPO with the goal of maximizing tax efficiency for existing owners of the issuer and the new public issuer and its shareholders. Often a reorganization transaction is completed at the time of an IPO to achieve optimal tax efficiency.
  • Directors and officers are recruited: Directors and any new management personnel are recruited during this stage. New directors are often needed to ensure the board of directors possesses the necessary mix of skills and experience for a public company board. In some cases, additional members of management are recruited to strengthen the management team and add public company experience for financial reporting expertise.
  • Preparation of prospectus: During this stage, a draft prospectus is prepared. The prospectus includes detailed disclosure on the issuer’s business, industry and growth strategy, including, in the case of a senior living issuer, a detailed description of each of the properties that will form its initial portfolio. The prospectus is also required to include the historical financial statements described above together with MD&A covering the same periods.  Other disclosure in the prospectus includes the structure of the issuer and its outstanding capital, biographies of the issuer’s senior executives and directors, the issuer’s governance structure, management and board compensation, use of proceeds from the offering, the dividend policy, and the key risk factors for the issuer and the offering. An important area of focus in preparing the prospectus will be determining what, if any, forward looking financial or other information will be included in the prospectus. Forecast financial disclosure can be beneficial in marketing an offering but carries heightened risk if forecasts are not met.
  • Preparation of marketing materials: Marketing materials, including an investor presentation, will be prepared with the guidance of the issuer’s investment banking and investor relations advisors. These materials will form the basis of the marketing efforts for the IPO and are used in investor meetings during the roadshow.
  • Select stock exchange for listing: The issuer, together with its advisors, will also determine which stock market to apply for listing on and reserve a stock symbol for the issuer’s shares.
  • Testing-the-waters: Typically, near the end of the preparation stage, the underwriters will conduct a “testing-the-waters” process to evaluate investor receptivity to the IPO. The process is confidential and involves meetings with institutional investors in advance of a public prospectus filing.  Following the end of the meetings, a 15-day cooling off period must be observed prior to a public filing of the prospectus.
• Prospectus filing and regulatory review. After the preliminary prospectus is complete, including the financial statements and audit, the issuer’s legal counsel will confidentially file the preliminary prospectus with the Canadian securities regulators. This confidential filing helps to reduce IPO risk by identifying any significant regulatory issues prior to publicly filing and launching the IPO and allows for an expedited marketing process to occur after receiving first comments from the regulators.
  
  

  Following the confidential filing, the Canadian securities regulators aim to provide first comments on the prospectus within ten business days.  The issuer, through its legal counsel, provides detailed responses to the regulatory comments and seeks to resolve the regulatory comments as quickly as possible. Typically, the regulatory review process with the Canadian securities commissions runs over a four-to-six-week period after the initial prospectus filing. Once all regulatory comments are resolved, the issuer will be cleared to file the final prospectus and is then free to price the offering (assuming a successful marketing effort), file the final prospectus, and close the IPO.

  During this stage, the issuer and its legal counsel will complete an initial listing application process with the chosen stock exchange with the aim of having conditional listing approval granted prior to filing the final prospectus.

• Marketing and closing. Following the receipt of first comments from the securities regulators, the issuer and underwriters will assess whether to publicly launch the IPO and commence marketing for the offering. Assuming no significant concerns have been raised by the regulators and market conditions are receptive to the IPO, marketing the IPO will commence. The marketing period usually runs over a two- to three-week period and, assuming a successful process, concludes with the pricing of the IPO. At pricing, the underwriters provide a firm commitment to purchase the shares of the issuer or selling securityholders at a fixed price and a final prospectus is filed reflecting the pricing information.  Closing and listing of the issuer’s shares is completed one to two weeks following pricing.

Going public represents a pivotal step for senior living companies, offering access to capital, enhanced visibility, and the potential for stronger valuations. While the process requires rigorous preparation, the rewards can be significant for issuers, owners, and investors alike. With thoughtful planning, the right leadership team, and experienced advisors, an IPO can unlock new growth opportunities and position a business for long-term success.

The author would like to thank Elad Dekel, Articling Student-At-Law, for his assistance in preparing this article.

¹ The term “companies” is used generically throughout this article and includes other legal structures such real estate investment trusts..