An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014.TODD KOROL
Two of the best-known names in boutique energy investment banking are joining forces in a friendly deal.
Publicly held GMP Capital Inc. announced late Thursday that it is buying privately held FirstEnergy Capital Corp. for $98.6-million. GMP will pay for the deal by issuing $58.9-million in stock, that will be paid out to FirstEnergy shareholders over four years, and the balance through the issuance of an unsecured promissory note.
The move comes after GMP struggled for several years to regain glory in energy deal-making, a field in which it was dominant in the late 1990s and in the 2000s. Meanwhile, this year, FirstEnergy was rebounding in equity financing as well as in its merger-and-acquisition business following the worst months of the oil-price crash in late 2015 and early 2016.
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"The opportunity to join forces with a highly respected industry leader that has been part of the fabric of Canada's energy culture for nearly a quarter century was very appealing," Harris Fricker, GMP's chief executive officer said in a release.
"This significant investment reconfirms our commitment to Calgary and the oil and gas sector and is aligned with our longer-term bullish view of the energy market."
GMP plans to operate the combined energy businesses under the "GMP FirstEnergy" brand.
The acquisition is a rare move for GMP, which historically has chosen to build out new businesses from scratch, as it did with its move a few years ago to build an energy investment banking franchise in the U.S.
GMP's shares have risen 13 per cent since the start of the year. Canada's second-largest independent brokerage by market capitalization reports its latest quarterly earnings early Friday.
Key members of FirstEnergy's management team will stay on after the acquisition including executive chairman Jim Davidson, who will become deputy chair at GMP. John Chambers, FirstEnergy's CEO, will serve as vice-chairman and president of GMP FirstEnergy. The firms did not indicate what the impact will be on their respective work forces. GMP has 290 employees worldwide, and FirstEnergy employs about 100, with most in Calgary and a small team in its London office.
"There are going to be layoffs and therefore a number of professionals will be joining the already-large [energy-research and banking] pool of talent on the sidelines. And frankly, I doubt many of them are currently carrying FirstEnergy business cards," said veteran Bay Street headhunter Joe Kan.
Established in 1993 by Murray Edwards, Jim Davidson, Rick Grafton and Brett Wilson, FirstEnergy is one of the two most prominent Calgary-based energy boutiques, along with Peters & Co. Ltd. Like all energy brokerages, it has struggled in recent years through some lean times amid the oil-price collapse, but thrived in 2016 as it landed spots in underwriting syndicates for most energy share issues, including the record-setting $4.4-billion TransCanada Corp. offering last March. The firm is also active in mergers and acquisitions among small and mid-size exploration and production companies. FirstEnergy is running in 12th place in the equity underwriting league tables year-to-date, according to Bloomberg data.
In 2014, FirstEnergy ended a partnership with Société Générale SA, with the Paris-based investment bank selling its minority stake back to FirstEnergy. The alliance helped the Calgary financial-services company expand its financing, research and merger and acquisition business to worldwide clients. But it had bolstered its presence on its own with an office in London.
The golden era for acquisitions among the independent boutiques was in the mid-to-late 2000s, when a slew of firms were bought out at high multiples. In 2007, Westwind Partners, which had been set up only five years prior, was sold to U.S. firm Thomas Weisel Partners Group for $147-million (U.S.) – or roughly five times book value.
However, several Canadian and foreign-based investment dealers have either closed Calgary offices or shut down completely as market conditions worsened in recent years.
Niall McGee
Jeffrey Jones