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Canada’s CI Financial Considers U.S. Listing to Boost Deals

Bloomberg logoBloomberg 9/10/2020 Paula Sambo

(Bloomberg) -- CI Financial Corp., Canada’s largest independent mutual fund manager by market value, may seek a U.S. listing as it ramps up a strategy of buying smaller wealth management firms.

Chief Executive Officer Kurt MacAlpine said the Toronto-based company is in talks with a number of U.S. registered investment advisers, having bought interests in eight firms over the past year. CI’s largest such deal came in August, when it agreed to buy Balasa Dinverno Foltz LLC of Itasca, Illinois, a private wealth management firm with $4.5 billion in assets under management.

“We’ve been focused on globalizing the company in a number of different ways. One is our business mix. The other is our investor base,” MacAlpine said in an interview. “There absolutely is a scenario where we do our next financing in the U.S. It would probably be a little bit easier to do it on the back of having a listing in the U.S., just because it helps to reinforce interest in our stock.”

CI’s new strategy is to expand beyond its Canadian base by consolidating U.S. firms that handle investments and offer advice to affluent clients. It’s looking to boost profits from its wealth management segment, which employs investment advisers, to at least C$200 million ($152 million) in the long run, the CEO said, helping offset headwinds in its core mutual fund business.

a screen shot of a social media post: CI Financial is focusing on U.S. growth to boost its slumping share price © Bloomberg CI Financial is focusing on U.S. growth to boost its slumping share price

CI has seen its stock price fall 40% over the past five years as the fund industry faces growing pressure on fees and tougher competition in Canada from domestic banks and global providers of exchange-traded funds. At C$4 billion in stock market value, CI is larger than other Canadian independent firms such as AGF Management Ltd. and Fiera Capital Corp. -- but it’s smaller by assets under management than some bank-owned rivals, including Royal Bank of Canada’s global asset management arm.

MacAlpine, 39, has set out a game plan to propel the company in a new direction since taking the helm a year ago. International expansion is central to that. That means a lot of small deals. In addition to BDF in Illinois, CI has bought interests in advisory firms in California, Massachusetts, Arizona and Arkansas.

The CEO said the decision to focus on the U.S. for growth was “crystal clear.”

“There’s this massive arbitrage opportunity, essentially buying smaller RIAs and putting them together versus buying large firms,” he said. The company has not disclosed the terms of its U.S. deals. Generally speaking, CI is comfortable paying “high single digits” multiples of Ebitda, MacAlpine said.

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“The deal dynamics in Canada are very different. The market’s very concentrated, it’s very mature, and there’s not that many deals that come to market,” he said. “If the deal dynamics remain intact, with similar high-quality firms coming to market and the valuations that we’re paying being constant, you could see us bigger in U.S. wealth management than in Canada.”

Aggressive Buybacks

Acquisitions provide another outlet for CI’s free cash flow, which has been used to buy back nearly 20% of the shares since fiscal 2016, according to data compiled by Bloomberg.

The company will be aggressive about repurchasing shares as long as its valuation is near these levels, chairman Bill Holland said in an interview. CI trades about about 7.8 times analysts’ earnings estimates for this year, data compiled by Bloomberg show.

“If the stock continues to trade at multiples like this we will probably reduce the shares in half over the next six or seven years,” he said in an interview.

Holland, who currently owns 3.7% of the firm, said he would rather “own 2% of a much bigger, much more global, much more diversified integrated wealth and asset management firm.”

The firm, which manages C$130 billion in assets in its core fund-management business, recently struck a partnership with global private equity manager Adams Street Partners LLC as alternative assets become more important for Canadian portfolios. It could do a similar strategy for private credit, or acquire funds, depending on the opportunities, MacAlpine said.

(Updates with additional information on Canadian market in fifth paragraph)

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