Canadian Imperial Bank of Commerce is making a push back into Canada's thriving technology sector, acquiring private specialty finance firm Wellington Financial for an undisclosed sum.
The deal announced Monday allows CIBC to bulk up and launch a new business line – dubbed CIBC Innovation Banking – that brings Wellington Financial's team, headed by veteran Bay Street financier Mark McQueen, and its $300-million fund into the fold. CIBC plans to offer early- and mid-stage companies a full suite of services across North America, from cash management and deposits to personal wealth management and capital markets.
Mr. McQueen, an opinionated figure with a reputation for understanding new technologies and the culture that creates them, will join the bank along with his staff and head the new division.
Buying Wellington gives CIBC a new way to deploy capital, along with assets and expertise to help the bank vie for business with growing tech companies. And it comes at a time when Canada's technology sector is flourishing, with successful IPOs by firms such as retail software provider Shopify Inc. in 2015 and Real Matters Inc. in 2017. Venture capital has hit levels not seen since the dotcom boom, with Canadian and foreign investors piling into hot Canadian startups.
Meanwhile, the federal government has adopted an innovation-friendly posture, pledging billions of dollars to venture capital, clean-technology firms and a teeming sector focused on artificial intelligence.
Yet competition from foreign financiers is intensifying, and there are still gaps in the funding system for fast-growing tech companies. Canadian banks have often stayed on the sidelines of the domestic tech-sector's revival.
The move by the country's fifth-largest bank to finance more technology companies has echoes of the late 1990s, when CIBC held a leading position in the sector among Canadian lenders and had a greater appetite for risk. But after several big bets in the U.S. went sour, and CIBC paid billions to settle a suit with Enron investors and write down bad subprime mortgages, CIBC lost that edge. Its sway with tech companies was eclipsed by peers such as Royal Bank of Canada and Bank of Montreal.
U.S. lenders catering to technology companies and venture capitalists put down roots in Canada, including Comerica Inc., a bank that has since made major inroads. Last May, California-based Silicon Valley Bank filed an application with Canada's banking regulator for a license to open a lending branch in Toronto, adding a new competitive dynamic.
Canada's technology sector is more mature than it was in the dot-com era, and CIBC has a different approach. The bank has been trying to deepen its ties to small and medium-sized businesses in Canada, making the timing ripe to re-establish itself among emerging technology firms. And the innovation banking arm also builds on the U.S. commercial lending strength that CIBC acquired last year when it spent $5-billion to buy Chicago-based PrivateBancorp Inc., merged it with existing U.S. operations and re-branded it CIBC Bank USA.
Whereas Wellington's core strength has typically been in later-stage debt financing, much of it high-yield, CIBC wants to get in the door with companies earlier and stay close as they grow toward a potential initial public offering.
"Rather than chasing the IPOs when they come, we're adopting an approach of starting and helping them start their businesses," said Roman Dubczak, CIBC's head of global investment banking, in an interview. The innovation banking business aims to be "a real start-to-finish sort of operation versus just being a big technology investment bank. It's a much more early-stage-weighted strategy."
CIBC first approached Wellington about joining forces. Founded in 2000, Toronto-based Wellington calls itself Canada's largest technology-focused venture fund, having led more than $500-million of new transactions since 2007. It also has offices in New York City and California, and has financed successful companies such as Real Matters and Vancouver's Vision Critical.
"They have a great track record. They've got terrific credibility in the market, and they've got terrific contacts in the innovation-based sector," Mr. Dubczak said.
Until now, Wellington's limitation was that as a fund, its cost of financing tended to be higher than the likes of Silicon Valley Bank, which made it hard to compete with U.S. rivals to finance scaling companies in the Canadian tech landscape.
Now that he's [Mr. McQueen] able to use the bank balance sheet, as opposed to having it in his fund, his cost of capital will be dramatically reduced," said John Ruffolo, CEO of OMERS Ventures, in an interview. "That will allow CIBC to very effectively compete."
In Mr. McQueen, Wellington's long-time president and CEO, CIBC lands a veteran of Toronto's tech ecosystem – an outspoken lender with a keen eye for public policy who Bay Street sources say is entrepreneurial and fearless. With a background in investment banking, including at BMO, Mr. McQueen has known Mr. Dubczak for 20 years, and will now take over as president and executive managing director of CIBC Innovation Banking.
Wellington's entire team of 16 people will join CIBC, and they will no longer raise outside funds. Toronto-based private equity firm Clairvest Group Inc., which held substantial stakes in several Wellington funds, has exited its partnership with Wellington through this deal.
"The CIBC platform gives our team the opportunity to continue to nimbly serve entrepreneurs and their VCs with a broader range of capital solutions, and represents the perfect partner for our ecosystem," Mr. McQueen said in an e-mail.
Victor Dodig, the chief executive officer at CIBC, had been a driving force behind the Canadian Business Growth Fund announced last March – a $500-million private-sector experiment urged on by the federal government to provide bridge funding that gives entrepreneurs an alternative to selling early to U.S private-equity firms. But Mr. Dubczak doesn't see that fund, of which CIBC is a member, as competition to its innovation banking business.
"If anything, it's complementary," he said. "From a Canadian context, I think we're going to actually have a very unique proposition from the get-go."