After a little over a decade at IGM Financial Inc., could it be time for the parent company of Investors Group to part ways with Mackenzie Financial Corp.?
That’s what GMP financial services analyst Stephen Boland concluded in a recent report after outlining Mackenzie’s slow revenue growth and less-than-stellar fund performance, coupled with the growing competition from banks. In the end, his report said that within the next few years there may be an opportunity to “crystallize the value of Mackenzie.” Or, in plain terms, sell it.
“While many accretive options are available a potential sale may be worthwhile,” the report said. “We believe that the lack of managers that market to independent advisors would create a premium valuation for Mackenzie and significant upside for IGM.”
That’s got to be tough news for Investors Group Inc., which purchased Mackenzie in 2001 after an intense bidding war. Towards the end of 2000 CI Fund Management Inc. launched an unsolicited $3.9-billion takeover bid for Mackenzie. This initial offer was followed by a reported three others (including one from AIC Ltd., now part of Manulife Financial) before the bid from Investors Group was finally accepted by the board on in January of 2001.
The result of that union was one of the country’s biggest retail wealth management firms--with more than $85-billion in assets under administration, it was more than twice the size of other competitors. The deal was then valued at $4.1-billion.
But while the industry was consolidating rapidly at that time, and Mackenzie had been a good get for Investors Group, the years following the financial crisis have been tough on the company--it has struggled to regain pre-meltdown profitability. “There is considerable pressure on independent asset managers in terms of competition and margin compression,” the report notes.
In addition to this analysis, the report looks at potential bidders for the company who may be interested in entering or expanding in Canada, with suggestions primarily leaning towards the big banks and, to a lesser extent, life insurance companies.
It is estimated that a sale today could fetch somewhere between $5-billion and $7-billion from another large asset manager at market. It’s not a show-stopping return, but neither is the firm going to lose money it seems.
The billions from the sale could be used to prop up parent company Power Financial’s subsidiary Pargesa or pay a one-time $20 dividend to shareholders. Alternatively, the report suggests using the capital to privatize Investors Group or fund further global expansion.