Canaccord management group aims to buy firm in $1.13-billion deal but tension mounts over price tag

Senior leaders of Canaccord Genuity Inc. CF-T hope to take the independent Canadian investment bank private, though a special committee of the company’s own board of directors says the price is too low.

The management team announced plans early Monday to launch an all-cash takeover bid of $11.25 a share, valuing the financial services company at roughly $1.13-billion. New York-based HPS Investment Partners LLC has agreed to provide up to $825-million in financing to support the deal.

In response, Canaccord’s board of directors has formed a special committee to consider the proposal from the management group that includes board chair David Kassie. The committee, which is composed of three board members who are not part of the management group behind the proposal, has not agreed to support the bid, the committee said in a statement, as it is awaiting the results of a formal valuation being prepared by Royal Bank of Canada.

Canaccord management group aims to buy firm in $1.13-billion deal but tension mounts over price tag

Discussions between management and the special committee have been under way since August, 2022, but the committee said it was not prepared to accept an offer of $11.25 a share based on RBC’s preliminary analysis. Subsequent negotiations have failed to result in an agreement.

The offer will not officially be made until the management group files the relevant documents – primarily a bid circular – with regulators and sends them to shareholders, which it cannot do until RBC completes its independent valuation. After that, the offer will remain on the table for 105 days, the management group said.

Canaccord’s special committee said it will decide whether to recommend approval or rejection of the bid within 15 days of the offer being officially made.

While the proposal represents a nearly 42-per-cent premium to the most recent 20-day average price of Canaccord’s stock, it is roughly 32 per cent below the company’s November, 2021, value of $16.52 a share. For investors who participated in Canaccord’s 2004 initial public offering at $10.25 a share, the offer represents a total return, excluding dividends, of less than 10 per cent.

“The public markets place a low value on the business, given its exposure to a cyclical capital markets environment,” the management group behind the proposed takeover bid said in a release. “That has been magnified by the tumultuous 2022 in the capital markets and which is expected to continue while the common shares remain publicly traded.”

Collectively, the management group holds slightly more than 21 per cent of Canaccord’s common shares. Including the roughly 11 per cent held by outside shareholders who have signed deals to support the bid, the offer currently has support from investors holding nearly one-third of Canaccord’s common shares.

Investors representing at least 75 per cent of Canaccord’s total common shares must agree to sell in order for the go-private transaction to be completed, the offeror group said. If that occurs, the plan is to delist Canaccord from the Toronto Stock Exchange “as soon as practicable,” the group said, which would bring its nearly two decades as a public company to an end.

Daniel Daviau, Canaccord’s long-time chief executive and a member of the offeror group, said in a statement that the company’s shares “have proven to be not well-suited for trading in a public marketplace.”

As an employee-owned business, Mr. Daviau said Canaccord “will be able to focus its efforts solely on advancing its proven strategies in ways that serve the best interests of its clients.”

The offer price of $11.25 a share is based on a fairness opinion prepared by Raymond James Ltd. on behalf of the management group behind the proposed bid. Canaccord’s special committee, however, said Raymond James is “not independent of the management group” and both sides acknowledge the fairness opinion does not meet the legal standard of a formal valuation.

Because Raymond James was hired by the management group that intends to make an offer and not by Canaccord itself, it cannot be considered independent as securities law requires.

Neither the management group nor the company itself agreed to comment beyond their respective statements.

Since going public in 2004, Canaccord has executed an aggressive growth strategy built on dozens of acquisitions to expand its business geographically and operationally. When Raymond James initiated coverage of Canaccord with a buy rating and a $11.50-a-share price target in June, 2022, analyst Stephan Boland noted just 34 per cent of the company’s revenue was generated in Canada during its 2022 fiscal year, which ended last March 31, down from 76 per cent in 2012, as Canaccord expanded into the United States, the United Kingdom and Australia.

Snapping up several financial advice firms in more recent years also allowed Canaccord to more than double its wealth management assets, according to Mr. Boland’s math, from $38.6-billion in 2017 to $96.1-billion by the end of 2022.

Canaccord has sought to position itself alongside cutting-edge industries as well, having played a key role in helping cannabis, cryptocurrency and e-sports companies navigate public markets.

After merging with Genuity Capital Markets in 2010, Canaccord started playing major financing and advisory roles in some of the world’s most cyclical industries: oil, gas and mining. The company made $100-million in profit in fiscal 2011, just one year after the Genuity merger.

“We are in a very cyclical business,” Mr. Kassie told The Globe and Mail in 2016, during a major commodity price rout. “We’re trying very hard strategically to change the composition of our business to diversify it more and to have more stability.”

More than six years later, Canaccord’s management team appears to have concluded the best way for the business to avoid cyclical markets is to exit the markets altogether.

Editor’s note: An earlier version of this article incorrectly referred to HPS Investment Partners as Canaccord’s largest shareholder.