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National Bank may eventually take over Fiera Capital: analyst

Bay Street rolls on despite market storm


Fiera Capital Corp., which became Canada's third-largest publicly traded fund company on Monday following a friendly merger, could eventually be taken over by National Bank of Canada , an analyst suggests.

"We believe after 2014 there is the possibility of National Bank privatizing the company," GMP Securities analyst Stephen Boland wrote in a report to clients after a restriction in commenting on the deal was lifted.

"The option will be on the table for the two parties," Mr. Boland later elaborated in an email.

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His firm had been the adviser to Fiera Sceptre Inc. in its $310-million cash-and-stock transaction to acquire Natcan Investment Management Inc., the money management arm of National Bank. The transaction closed on Monday, and the new firm has been renamed Fiera Capital.

Under the terms of the deal, the bank gets a 35-per-cent stake in Fiera Capital in exchange for giving up Natcan with its $25.4-billion in assets. The bank has the option to boost its interest to 40 per cent over the next two years.

In acquiring Winnipeg-based brokerage Wellington West Holdings Inc. last year, National Bank first took a minority stake before gaining full ownership.

With the acquisition, Fiera now has $54-billion in total assets under management. It has now overtaken AGF Management Ltd. to become the third-largest public fund company in Canada after IGM Financial Inc. and CI Financial Corp.

Mr. Boland, who has a "buy" rating on Fiera, raised his one-year target to $9.50 a share from $7.50 after revising earnings estimates following the merger. The acquisition of Natcan provides "considerable scale," and makes Fiera the six-largest Canadian asset manager, he said.

"We anticipate Fiera will maintain a dividend of 8 cents a quarter with debt repayment and growth initiatives a focus for free cash flow," he wrote.

The financial terms of the deal also includes $74.5-million in earn-out payments that Fiera Capital will get from the bank if it meets targets for revenue and assets under management.

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National Bank chief executive officer Louis Vachon said he had approached Fiera Sceptre to do the deal because Natcan "did not have the critical mass" to be a consolidator on the money management side of the wealth management business.

Fiera, which opened an office in Boston in September, will try to win business, and look for potential acquisitions south of the border.

With the transaction, National Bank gets two of the 12 seats on Fiera's board of directors, while Desjardins Group will elect two directors as long as it still holds at least 5.6 million shares in Fiera.

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