Skip to main content
Open this photo in gallery:

CI chief executive Kurt MacAlpine, seen here in 2019, told analysts on Thursday the plans to take the U.S. business public is still the “intended path” - but will not be in the immediate future..Tijana Martin/The Globe and Mail

Investment giant CI Financial Corp. CIX-T is selling a 20-per-cent stake in its U.S. wealth management business for $1.34-billion and pausing plans to spin out the division and take it public, as the company works to pay down debt.

The Toronto-based company announced Thursday it had agreed to make the sale to a group of institutional investors that includes Bain Capital, Flexpoint Ford, Ares Management funds, the State of Wisconsin and a wholly owned subsidiary of the Abu Dhabi Investment Authority, as well as other investors that have not been publicly named.

CI shares climbed nearly 50 per cent on Thursday, to $18.69 in early trading on the Toronto Stock Exchange. The shares pulled back and closed at $15.40, up 23 per cent on the day.

The transaction values the equity of the U.S. business at $6.7-billion, nearly three times CI’s entire $2.3-billion market capitalization on the Toronto Stock Exchange at Wednesday’s closing price of $12.50 per share. By retaining 80 per cent of the U.S. business, CI holds a stake valued by the new investment at just under $5.4-billion, or nearly $29 per CI share.

CI chief executive Kurt MacAlpine said in a statement that the deal “validates our differentiated U.S. wealth management strategy and the considerable success we have achieved in just over three years building and executing on the growth of the business.” The deal, subject to regulatory approval, is expected to close at the end of May.

The investment follows CI’s sale last month of its 45-per-cent ownership stake in Congress Wealth Management LLC, a Boston-based company with offices in seven cities, to Audax Private Equity.

Since 2019, CI has been on a spending spree. It has acquired more than 30 registered investment advisory businesses in the U.S. In total, CI has spent $2.85-billion in cash, stock and estimated future payments to build its U.S wealth management arm, which manages about $130-billion in assets.

The company’s mounting debt to finance its acquisitions had become a concern for analysts, who pay close attention to a measure that compares the company’s debt to its EBITDA, or earnings before interest, taxes, depreciation and amortization. The measure calculates how many years of profits it will take to pay off the debt. The smaller the ratio, the better.

In 2016 and 2017, well before the acquisition spree, CI’s debt-to-EBITDA ratio was below one to one, according to S&P Global Market Intelligence. As of Dec. 31, 2022, the ratio had spiked to 4.3.

The high debt levels resulted in S&P Global Ratings cutting CI’s debt rating to junk status last month. The company had previously requested that the agency withdraw its rating.

The proceeds from the deal announced Thursday, along with the proceeds from the Congress deal, will total $1.5-billion, CI said in a news release. The funds will be used to lower CI’s debt ratio from 4.0 to 2.7, the company said.

Immediately after the announcement Thursday, CI launched a tender offer to buy back $1-billion worth of debt.

Late last year, the company announced plans to spin out its U.S. wealth management operation and sell as much as 20 per cent of the division in an initial public offering, in order to help pay down debt. Mr. MacAlpine told analysts on Thursday that taking the U.S. business public is still the “intended path.” But he said this would not happen in the immediate future.

“We initiated an IPO process for our U.S. wealth management business in late 2022 because we believed our share price did not reflect the value we had created for our shareholders across both our Canadian and U.S. businesses,” Mr. MacAlpine said.

After the company announced the IPO, Mr. MacAlpine said, he received “significant inbound interest from leading institutional investors.”

The investors are buying preferred stock in CI’s U.S. business, which can be converted into common shares in certain circumstances. If the U.S. business does an initial public offering, the preferred equity turns into common shares automatically. The board of the U.S. business has no plans to pay dividends on the preferred shares, CI said Thursday.

During the analyst call, Mr. MacAlpine added that he is adding a six-person board of directors to oversee the U.S. division, for which the investor group will be able to nominate one member.

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/04/24 4:00pm EDT.

SymbolName% changeLast
CIX-T
CI Financial Corp
+1.05%16.33

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe