Canaccord in talks to buy Genuity

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Canaccord Financial Inc. has entered talks with Genuity Capital Markets on a deal that would unite the country's largest independent brokerage with an upstart Bay Street firm that has made inroads in the lucrative field of providing merger advice.

Publicly traded Canaccord recently made an offer to Genuity, according to sources close to both investment dealers. The bid values privately held Genuity at more than $100-million and would be paid mostly in Canaccord shares, sources said.

If consummated, the deal would represent a marriage of west and east. Canaccord has its roots on Vancouver's Howe Street and has traditionally been a player in junior resource stocks, while Toronto-based Genuity was launched five years ago by a team of former senior deal makers at the investment banking arm of Canadian Imperial Bank of Commerce.

Canaccord confirmed Wednesday that it is interested in acquisitions, putting out a written statement in response to market rumours.

The statement said that the firm "regularly evaluates potential acquisition opportunities," but did not mention Genuity specifically. Executives at Canaccord and Genuity declined further comment.

The logic behind such a deal is that Canaccord would combine its well-developed franchise in financing small-cap stocks, its retail brokerage division and its U.S. and U.K. operations with Genuity's advisory teams. Genuity does not have a retail network of brokers.

The biggest barrier to a deal would likely be leadership: Executives at each firm would want to retain a measure of control.

Consolidation is a fact of life on Bay Street, as dealers add expertise and renew their talent. Several independent firms have been sold in the past year. Australia's Macquarie Group, a rival to both Genuity and Canaccord, snapped up three smaller domestic dealers in the past two years. GMP Securities, another major rival, has used acquisitions to build private equity and retail divisions.

Talk of Genuity striking a union with Canaccord follows on chatter that the 100-employee firm has been wooed by long list of suitors. Macquarie, Dundee Securities and various U.S. brokerage houses have all made overtures to Genuity in the past two years, according to Bay Street sources.

Genuity has generated a great deal of interest in the financial community since it was founded by an entire team of financiers and traders who left or defected from CIBC World Markets in 2005. That drew a hefty lawsuit from the bank-owned firm. Led by co-founder David Kassie, the firm has earned business advising on trends such as private equity and income trusts.

The biggest obstacle to a union of Genuity and any other firm is the issue of who does what at the combined entity. While the all-important people issues are opaque, or undecided, sources say Canaccord would structure the financial side of a Genuity acquisition in a shareholder-friendly manner, and would try to lock in the Genuity partners for several years.

If a merger does come, at least 75 per cent of the price would be paid in paper, according to one source. Genuity shareholders would need to wait several years for all of their Canaccord stock to vest, a standard feature in these arrangements.