It was just three weeks ago that the financial industry was abuzz at the possibility of CI buying Scotiabank’s mutual fund operation, and now the Toronto-based fund manager is stirring things up again.
Rumours are running rampant that CI Investments is set to sell Blackmont Capital, its investment banking division, to Canaccord Capital for a minority stake in the dealer’s business.
While nothing has been confirmed, and neither company has made any comment, it’s no secret that CI is interested in boosting its business one way or another. “CI is always interested in expanding distribution,” says Gabriel Dechaine, an analyst at Genuity Capital Markets.
But why get rid of Blackmont, an IDA member firm, to have a stake in another IDA operation? Dan Hallett, president of Dan Hallett & Associates, says the investment banking business was more difficult to crack than CI thought it would be. “There was some doubt as to whether CI was really going to get into the investment banking business,” he says. “And that’s a pretty tough part of the industry to muscle into for a new player.”
If the deal goes through, this is a way for CI to get into the investment banking world without having to run the operation itself. “The deal allows CI to maintain access to distribution channels while diminishing exposure to capital markets revenue,” says Dechaine. “The company bought Blackmont primarily for distribution, but maybe it hasn’t picked up as much fee-based assets as they were hoping for.”
The deal would allow Canaccord, which has a $475 million market capitalization and 425 brokers, access to Blackmont’s nearly 200 advisors, which, Dechaine says, are generally considered to be high quality. “It expands their brokerage business quite substantially, and Blackmont’s advisors have large books of business, so that’s the appeal.”
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While this is all still speculation, the idea that CI would unload Blackmont shouldn’t come as a shock, as CI already has a distribution channel in Assante Wealth Management, which is both an IDA and MFDA member firm. Also, Blackmont was part of Rockwater, which was the company CI really wanted when it bought them both.
Hallett says the fund company could go two routes with Blackmont — sell it or merge it with Assante. “If you look at all the things they’ve purchased, they buy something and the name survives a little while, but eventually they squeeze out the synergies and merge it with what they already have,” he says. “Blackmont isn’t as well known across the country, so I can’t see them keeping the name as an established brand without putting in a lot of resources.”
CI could have merged Blackmont with Assante, but, says Hallett, “I’m not sure if Blackmont is a good cultural fit with Assante.”
The only other option is to sell and expand its own business by claiming a part of Canaccord in the process. If the deal goes through, CI would essentially become business partners with Manulife Financial, which owns a 20% stake in Canaccord.
This rumoured deal isn’t the only thing that’s got people in the financial industry talking — Industrial Alliance announced Tuesday that it is buying Sarbit Asset Management, while Sentry Select Capital and C.A. Bancorp have acquired hedge fund manager Waterfall Investments.
Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com
(09/09/08)