The Globe and Mail

More than one takeover will play out in financial services in coming weeks, as Wellington West is on the verge of acquiring one or two financial planning firms.
With the question of DundeeWealth’s future dominating water-cooler conversation on the Street, privately held Wellington West held an upbeat annual meeting in Toronto Monday that saw the company open up on its growth plans.
Wellington West founder and chief executive officer Charlie Spiring confirmed that the company still plans to be ready to go public by the spring of 2008, though market conditions will dictate whether it takes that major step.
Mr. Spiring clearly hoped to announce the acquisition of a financial planner at Monday's gathering, explaining that the board had signed off on a purchase, but the paperwork was being worked over by lawyers. For all the deal-making in this sector, it still cries out for consolidation, as Canada is home to 69,000 financial planners at a staggering 164 different firms.
Wellington West founders are stockbrokers, including Midland Walwyn veterans such as Mr. Spiring, and it has built a team of 137 financial advisers, taking care of $9.4-billion in client assets. However, the financial planning division is still in its infancy, with just $600-million in assets, so an acquisition would add much-needed scale.
The Winnipeg-based firm took a shot at Berkshire-TWC Financial Group earlier this year when founder Michael Lee-Chin put the 700-planner firm up for grabs. It finished second in that auction to Manulife Financial, which was able to give Mr. Lee-Chin a tax-free sale by paying him in its shares. Bulking up in the high-margin planning business will add to Wellington West’s valuation if it does indeed decide to go public.
For the employee-shareholders of Wellington West, the issue of just when to roll out an IPO now looms large. The firm doesn’t need capital. It revealed yesterday it paid out $5.5-million special dividend last year, and has a $38-million credit facility in place from CIBC World Markets, the same dealer that is on tap to lead an IPO.
That dividend worked out to $1.50 a share on stock that the company values internally at $90 a share. There were 3.6 million shares outstanding at the end of fiscal 2007, meaning Wellington West pegs its value at $324-million. (Many public companies disclose less than this still-private dealer.)
Growth is coming at a heady pace, with assets under administration expected to hit $12-billion by the end of 2008, and earnings before interest, taxes, depreciation and amortization to jump from $28.5-million to $41-million. Sell equity now, and shareholders could be giving away upside.
However, most stockbrokers who joined Wellington West did so after being pitched on an opportunity to buy stock cheap on arrival, then cash in when the partnership goes public. That’s always been the way to create wealth on the Street. Mr. Spiring faces enormous internal pressure to deliver on that promise.
Then there’s the external dynamic. If DundeeWealth does get acquired by a rival, Wellington West's scarcity value grows for public investors. But a private company’s shares would represent a great tool for recruiting displaced or unhappy advisers.
This will be an unpopular view with rank-and-file employees who want to cash in their chips, but Wellington West may be best served by remaining private right through 2008.