Fiera Sceptre Inc. has struck a $310-million deal to buy National Bank of Canada's asset management arm, a move that sets the stage for an ambitious expansion into the United States.
Fiera Capital, the new name for the merged entity, will have $54-billion in assets and overtake AGF Management Ltd. to become the third-largest Canadian publicly traded asset manager after IGM Financial Inc. and CI Financial Corp.
Under the stock-and-cash deal announced on Monday, the bank will get a 35-per-cent stake in Fiera Capital in exchange for giving up Natcan Investment Management.
Last fall, Fiera Sceptre opened its first U.S. office in Boston, home to such fund giants as Fidelity Investments. It hopes the new acquisition will help give it the heft to attract more U.S. customers.
"We are putting a very high probability that we will be winning business in the U.S. market," in addition to hunting for strategic acquisitions there, Jean-Guy Desjardins, chairman and chief executive officer of Montreal-based Fiera Sceptre, said in an interview.
He stressed that the company hopes to grow in Canada, too. "The investment management business will be consolidating over time, and we are positioning ourselves to be the consolidator of choice in the Canadian marketplace," added Mr. Desjardins, who will retain his executive roles and remain controlling shareholder of the merged businesses.
National Bank has the option to boost its stake in Fiera Capital to 40 per cent over the next two years. Fiera Sceptre will pay about $235-million in cash and issue Class A shares to the bank. The remaining $74.5-million will be paid over seven years, subject to certain conditions.
The transaction, which is expected to close in late April, requires the approval by Class A Fiera Sceptre shareholders at a meeting set for March 29. The merger will mean annual savings of $10-million and is expected to immediately add 10 to 15 per cent to Fiera's earnings per share.
National Bank CEO Louis Vachon said he approached Fiera Sceptre to do a deal over a year ago after concluding that Natcan "did not have the critical mass" to be a consolidator on the money manager side of the wealth management business.
In contrast, the Montreal-based bank has built its brokerage arm, National Bank Financial, into a sizable player. Last year it acquired two brokers, Wellington West Holdings Inc. and one owned by HSBC Bank Canada, in a bid to expand beyond Quebec.
But unlike the situation at Wellington West, where it was obvious that the bank wanted 100-per-cent control after buying a small initial stake, Mr. Vachon said he isn't looking to do a "creeping takeover" of Fiera Capital. "For the foreseeable future – at least for the next five years – we would entertain keeping the same situation," he said.
Fiera Sceptre was formed in 2010 from the merger of a firm founded by Mr. Desjardins and Sceptre Investment Counsel Ltd. Mr. Desjardins said the main condition of the deal was that he and other managers within his firm retain control of the combined entity.
"I have full control of the board, and I have a voting arrangement with National Bank where, except under very, very exceptional situations, I will vote the National Bank shares," he said. The bank has two of the 12 board seats.
CIBC World Markets analyst Robert Sedran said the bank's minority stake in a money manager differs from its strategy of a decade ago, when it acquired all of Toronto-based Altamira Investment Services Inc. and merged the mutual fund company with Natcan.
This deal "marks a break from its own history as well as the strategy being pursed by most of its largest domestic peers," Mr. Sedran wrote in a note to clients. "The benefits are less clear to us since our bias is toward the retention of control in key business lines."