Canaccord Genuity Group Inc. is selling a stake in its British wealth management business to a U.S. private equity fund, raising the equivalent of $210-million that is earmarked for expanding Canada’s largest independent investment dealer.
Toronto-based Canaccord announced late Wednesday that HPS Investment Partners LLC, a New York-based fund manager, is buying £125-million of convertible preferred shares in its British wealth division, which represents a 22-per-cent ownership stake.
“Partnering with HPS provides us with an opportunity to build upon the exceptional growth that our U.K. wealth management business has achieved,” Canaccord chief executive officer Dan Daviau said.
Canaccord had expanded its asset management businesses in Britain, Europe and Australia through acquisitions. The company has $52-billion of client assets under management in Britain and Europe, up 8 per cent over the past year, and oversees total client assets of $85-billion. In an interview, Mr. Daviau said British wealth management industry continues to consolidate around its largest players and Canaccord sees the potential to double the size of this business with HPS’s support.
Canaccord opted to sell a stake in the British business to HPS after reviewing its plans for the business over several months, Mr. Daviau said. In August, the company named fund manager Eric Rosenfeld to its board – he is a noted activist investor, and also known for belting out Broadway hits at closing dinners and industry functions. Canaccord can use the money it receives from HPS for any purpose and Mr. Daviau said the company may choose to lower its debt by redeeming outstanding convertible debentures.
In the past, HPS has backed a number of Canadian businesses that expanded through acquisitions, including waste-disposal company GFL Environmental Inc. The 14-year-old private equity firm has US$68-billion of assets and was spun out of J.P. Morgan Asset Management. The HPS investment in Canaccord must be approved by British regulators, and is expected to close in the next three months.
Canaccord announced the British investment along with record quarterly financial results, driven by strong results from its growth company-focused capital markets group and its wealth management operations. Canaccord’s revenue increased by 73 per cent to $533-million for the three months ended Dec. 31, compared with the same period a year ago. The company’s net income or profit more than doubled to $75.2-million, compared with the same period a year earlier.
“We earned our strongest quarterly revenue on record and set new performance records in several businesses,” Mr. Daviau said.
Canaccord bankers had roles in 187 transactions during the most recent quarter, or more than two deals each day, that raised $19.5-billion for clients. The dealer focuses on sectors such as technology, health care and small-cap mining, all of which experienced a sharp increase in initial public offerings and other financing activity during the final quarter of last year.
Over all, Canaccord investment banking revenue more than tripled, year over year, to $213-million in the most recent quarter. The bulk of the increase came from the dealer’s U.S. platform, where revenue rose by 95 per cent to $160-million. Mr. Daviau said while the stock market’s bull run will eventually slow, the dealer expects to continue to see strong client demand for creating special purpose acquisition companies, IPOs, takeovers and other advisory work.
Canaccord’s stock price has more than doubled over the past year, closing Wednesday at $12.74 on the Toronto Stock Exchange, which gives the company a $1.4-billion market capitalization. The HPS investment values the British wealth management business alone at almost $1-billion.
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Andrew Willis