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streetwise

New directors bring new relationships, and Canada's greying boardrooms herald an opportunity for foreign and independent investment banks that are steadily making inroads in the Canadian market.

The Globe and Mail's annual Board Games special report, released on Monday, finds that directors in Canada are getting old, and many are going to have to be shuffled out soon. Three-fifths of directors were 61 or older in 2010, with 15 per cent older than 70. Internationally, there is pressure on boards to get fresher. Those numbers say that one way or another, Canadian boardrooms will have to be revivified.

As that happens, there is an opening for rival bankers to pry away longstanding relationships between companies and their traditional banks. Professional board searches are likely to yield more international candidates for boardrooms, meaning new directors are as likely to be as comfortable dealing with JPMorgan Chase & Co. as they are with Toronto-Dominion Bank or Royal Bank of Canada. And with more pressure in the U.S. to use independent advisers, directors from south of the border may also push to use boutique investment banks that are not conflicted by such things as lending relationships.

The trend to using independent advisers has been growing. So far this year, in worldwide M&A, eight of the top 25 firms in the Thomson Reuters league tables are advisory boutiques that don't offer other services, such as lending, that can lead to conflicts. Boards are increasingly sensitive to such conflicts, especially after high-profile cases such as the browbeating that Goldman Sachs Group Inc. got from an influential judge for its conflict of interest when working on a pipeline industry takeover.

In the U.S., Fortune magazine noted recently that about one-fifth of all merger fees so far this year have gone to advisory boutiques. Canada is lagging; advisory-only boutiques have a much smaller presence in the league tables here. But firms are gearing up for more. Evercore Group LLC is the busiest U.S. merger boutique in Canada, ranking 12th in the Thomson Reuters Canadian merger advisory league tables so far this year. The firm is said to be recruiting aggressively.

Other independent firms are also making inroads. As baker Canada Bread looks at its options, independent boutique Centerview Partners LLC is working with RBC on the sale process. Canada Bread's parent company, Maple Leaf Foods Inc., owes a lot of money to a lot of people. RBC was part of the syndicate for Maple Leaf's line of credit. Centerview doesn't lend.

BlackBerry Ltd. is another example of the trend. The mobile-communications company had been using two old-line banks as its advisers, the capital markets arms of RBC and JPMorgan Chase.

But late in its sale process, BlackBerry brought on merger boutique Perella Weinberg Partners as a third adviser. BlackBerry never said why, but the fact that the other two banks are lenders likely had something to do with it. Perella Weinberg's advice would be valuable in any situation where a possible transaction would involve the other banks putting up money, where they would earn fees that could influence their thinking. JPMorgan is also said to be a counterparty to BlackBerry's credit line.

The opportunity is not only for U.S. firms. Canada has a handful of smaller independents that focus specifically on advisory business. There's Morrison Park Advisors and Blair Franklin Capital Partners, for example.

Blair Franklin had a hand in the Maple Group deal, which saw a consortium of financial institutions take control of the country's major stock exchange platforms, and is working with The Economical Mutual Insurance Co. on its demutualization. Morrison Park was retained by Mobilicity, the faltering wireless provider, which wants to sell to Telus Corp., and by one of the Brookfield Financial group of companies on a related party transaction involving a Toronto office tower.

The days are long gone of an investment banker sitting on a Canadian company's board and steering all the advisory business to his own bank (let's be honest, odds are it was a man). Rules on director conflicts have largely ended that. But name a Canadian company and most people in finance can recite the house banker, and it's often one that does the lending.

Those relationships are not going to just go away. But the potential for conflict of interest is going to mean that the major banks are going to find themselves sharing merger fees more often with outside firms that are independent. Board renewal is only going to accelerate that.