Bank of Nova Scotia's move to buy a U.S.-based investment bank focused on energy is all about the sector, rather than the country.
Scotiabank is keen on building out its abilities in energy, where the firm is a large global player, and that led it to the purchase of energy boutique Howard Weil.
Howard Weil does nothing but energy, perfect for Scotia, given that the bank isn't aiming at becoming a player in the broader U.S. investment banking business. The Canadian firm wants to stick to niches where it has a significant expertise, and has been eyeing Howard Weil for years as a potential addition to its U.S. energy business, said Adam Waterous, the oil and gas specialist who is Scotia Capital's head of global investment banking.
In fact, as Scotia looks to expand its investment banking capability globally into other countries where the bank has a presence, such as Latin America, look for energy to be first, Scotia executives said in an interview after the Howard Weil purchase was announced.
The deal with Howard Weil was the product of four years of on and off talks, with a more intense 18-month get-to-know-you period preceding the deal. Howard Weil wasn't out looking for a buyer, and Scotia wasn't looking at any other firms.
“This was a one-woman love affair,” said Mr. Waterous.
Howard Weil was the choice because of what it could bring to add to what the Canadian bank already had in the U.S.
Scotia already had a strong energy mergers and acquisitions practice, which the purchase bolsters. And it was a big lender to oil and gas companies in the U.S. But now the bank is able to bolt on a full-fledged equities business that specializes in U.S. equities, vastly increasing the number of companies and investors that it covers. ( Here's a link to Howard Weil's lengthy equity research coverage list.) “We have a strong equity business in Canada but in the U.S. it has been quite modest,” Mr. Waterous said. “Building a U.S. equity business has been a priority and Howard Weil was ideal.”
The overlap is strong with the lending business, as the bank is already a lender to about 70 per cent of the companies that Howard Weil covers.
On the other side, Howard Weil's lack of lending has been a barrier to further expansion, leaving the firm at a disadvantage when faced with a transaction or relationship that requires credit.
“We just don't have that lending capability and with it we think we can really grow,” said Howard Weil's president, Paul Pursley.
Still, the decision to give up independence and join with a huge bank is a tough one for any boutique firm. Mr. Pursley said that watching Mr. Waterous and his business helped Howard Weil get comfortable with the idea. Mr. Waterous owned an energy specialist firm in Calgary that he sold to Scotia, and the business has thrived.
“Adam has been down this road, similar to us, and he has done exceptionally well,” Mr. Pursley said.