Canaccord revenue climbs almost 40 per cent as M&A advisory fees surge

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Canaccord Genuity Corp. generated more than half-a-billion dollars in revenue last quarter – an increase of almost 40 per cent from the same quarter a year ago – driven mostly by a surge in fee revenue from its advisory business.

The Toronto-based investment bank raked in a profit of $81-million on revenue of $523-million for the fiscal first quarter ending June 30, 2021, compared to a profit of $29-million on $377-million in revenue a year prior.

Chief executive Dan Daviau said in an interview that Canaccord generated its highest-ever revenue from advising on mergers and acquisitions last quarter, and that he expects this pace of M&A deals to continue for the rest of the year. Canaccord generated $78-million in fees from advisory work, a 271-per-cent increase from the same quarter last year.

The quarter’s revenue, however, was almost 25 per cent lower than the $692-million that Canaccord generated in the first three months of 2021, which was characterized by trading volatility and a blistering pace of equity financings and initial public offerings – all of which contribute significantly to an investment bank’s revenue.

Revenue from the bank’s trading division declined by roughly 40 per cent quarter-over-quarter to $52-million, while investment banking revenue plunged by 36 per cent to $195-million. The bank participated in 199 deals last quarter, compared to 238 in the first three months of 2021.

Mr. Daviau called the last fiscal quarter an “anomaly,” and said he had expected the number of new issues to decline after an unprecedented pace in early 2021. “There was an immense stampede of activity in the first quarter of 2021, and new issue activity could not stay at the level that it was at.”

He added that there is still a “buoyant pipeline” of companies looking to raise money but it remains to be seen what investors’ risk appetite will be in September.

“This quarter was fundamentally driven by the same factors which have driven our business since the start of the pandemic – deal count, and a strong wealth management franchise,” Mr. Daviau said.

The bank earned $195-million in revenue from its global wealth management business, a slight decline from the first three months of 2021, but a 41-per-cent year-over-year increase. In April, Canaccord announced plans to acquire the Scottish wealth management business Adam & Co. from NatWest Group PLC for $95-million, which is expected to add $2.9-billion to its total assets under management once the deal closes at the end of September.

The company has spent approximately $350-million over the past few years growing its wealth management business in the United Kingdom, Australia and Canada. In March, Canaccord had attempted to buy rival RF Capital Inc., the parent company of Richardson Wealth, for $367-million, but the latter company rebuffed Canaccord’s offer, saying it was not in the best interests of shareholders given how quickly the wealth management industry is growing.

But Canaccord is still sitting on $1.4-billion in cash, which Mr. Daviau says the company plans to use to fund future wealth management acquisitions and buy back additional shares.

“We are going to commit capital to growing our wealth management business in the U.K. and Australia and Canada. Our strategy in building our wealth management business has contributed significantly to profitability,” he said.

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