Sprott is making its first foray into the United States, agreeing to buy three firms run by junior resource investor and businessman Rick Rule.
The acquisitions are part of a strategy by the Bay Street investment firm's new chief executive officer, Peter Grosskopf, to double its size over five years through global expansion.
Investors applauded Sprott's latest move, sending its shares up by about 9 per cent on the Toronto Stock Exchange Wednesday.
Sprott said it has signed a letter of intent to acquire the stock of Carlsbad, Calif.-based Rule Investments Inc., which owns Global Resource Investments Ltd., Terra Resource Investment Management Inc. and Resource Capital Investments Corp.
The deal gives Sprott a U.S. sales force and a slate of new investment products. "We have a global name in resources but we haven't sold it globally, or into the U.S.," Mr. Grosskopf said in an interview. "Rick has the platform to help us do that."
Sprott will issue 20 million common shares to complete the transaction, with a further payout of eight million "earn-out" shares over five years if certain targets are achieved. Based on its closing price of $4.50 a share on Tuesday, the initial acquisition would be $90-million.
"We look forward to being the footprint for Sprott's U.S. growth across a range of products," Mr. Rule told analysts in a conference call. "Although the Sprott organization hasn't fully exploited the Sprott brand in the United States, the Sprott brand is extremely well known."
Mr. Rule sees opportunities for Sprott in his Terra Resource Investment Management business, which runs segregated accounts for institutions and wealthy individuals. "We think that product aimed at higher net-worth individuals where their money will be managed individually … will do extremely well "
The deal, which requires regulatory and other approvals, is expected to close by year end. Mr. Rule is expected to join Sprott's executive management team for a minimum of three years, and will become a major shareholder.
The acquisition is expected to add about $500-million (U.S.) to assets under management, and $850-million to assets under administration.
"We view the acquisition very positively" because it will allow Sprott to realize its growth plans, and also increase earnings per share, M Partners analyst Ryan Roebuck said.
While U.S. investors have been able to buy Sprott's offshore funds, the acquisition is "a faster and easier way of expanding into the U.S. market as the deal comes with fund and broker-dealer registration, said Mr. Roebuck, who has a "buy" on Sprott with a one-year target of $5.25 (Canadian) a share.
Resource Capital Investments, which was founded in 1998, runs $370-million (U.S.) in pooled investment vehicles that invest in the natural resource sector and generates management and performance fees. Terra Resource Investment Management, founded in 2006, runs $110-million in assets.
Mr. Rule and clients of his brokerage together are large shareholders in Sprott Resource Lending Corp. and Sprott Resource Corp., which are two Sprott affiliates. "I have substantial skin in the game," Mr. Rule said.
With files from reporter Boyd Erman