Royal Bank of Canada pushed ahead with its U.S. expansion Thursday with the $1.46-billion (U.S.) purchase of Minneapolis-based investment house Dain Rauscher Corp.
Under the cash deal, expected to close Dec. 31 subject to regulatory approval, Dain Rauscher stakeholders will get $95 (U.S.) for each common share.
The acquisition will see Royal Bank take over Dain Rauscher's retail brokerage and investment banking operations, with the company being renamed RBC Dain Rauscher Wessels.
"This transaction is consistent with our continuing strategy of targeted acquisitions in the U.S. market," Royal Bank chairman and chief executive John Cleghorn said in a statement.
"Dain Rauscher will provide our global wealth management business with an established U.S. presence. It will also give our corporate and investment banking business a stronger origination and and distribution capability, particularly in the technology, energy and healthcare sectors."
Irving Weiser, chairman, president and chief executive of Dain Rauscher, will become chairman and CEO of the RBC Dain Rauscher Wessels. He also joins Royal Bank's group management committee, as well as taking responsibility for the bank's U.S. wealth management business and Dain Rauscher's fixed income business.
"We are pleased to be joining forces with Royal Bank of Canada, a premier financial services organization which shares our goal of creating a separately managed growth platform in the United States for wealth management and global capital markets," Mr. Weiser said in a release announcing the deal.
Dain Rauscher, formed in 1909, among the largest regional full-service securities firms in the U.S., boasting 1999 revenues of more than $94-million (U.S.) About 58 per cent of Dain Rauscher's revenue over the last 12 months came from its private client group, while 28 per cent came from equity capital markets.
Thursday's deal is the second major U.S. acquisition for Royal Bank - Canada's largest bank by assets - in a matter of months. In June, the bank bought two insurance subsidiaries of Greenville, S.C.-based Liberty Corp. for $580-million (U.S.).
Analyst Kevin Lampo, with Edward Jones in St. Louis, said the Dain Rauscher purchase should be a good fit for the bank, given its goal of solidifying its position in the U.S.
"It certainly seems to be a good first step for the brokerage side of the business and the investment banking side of the business," Mr. Lampo said. "I think they can take that and combine it with the other acquisitions they've made this year. Overall, it looks like they're executing on their plan."
The price Royal Bank intends to pay, Mr. Lampo said, is reasonable in comparison to other similar recent transactions south of the border. According to information the bank supplied to analysts, the price is about 2.6 times Dain Rauscher's book value, a figure comparable to other regional brokerage deals.
"It's consistent with what we've seen in other prices that other people have paid to buy other brokerage businesses in the past six months," Mr. Lampo said.
Following the announcement, the Canadian Bond Rating service reaffirmed its credit ratings on Royal Bank's outstanding securities and maintained its rating outlook as stable. Standard & Poors also affirmed Royal Bank's ratings in the wake of the acquisition, also maintaining the bank's outlook at stable.
Royal Bank's other U.S. activities include corporate and investment banking operations in Boston, Chicago, Houston and New York. It also has discount brokerage holdings in New York, an Internet banking operation in Atlanta, a mortgage origination business in Chicago and private banking concerns in New York and Miami.
Terry Weber