GMP Capital CEO Harris Fricker is seen in this file photo.Fernando Morales/The Globe and Mail
Energy-market conditions have been anything but ideal for GMP Capital Inc. since it bought FirstEnergy Capital last summer, but the acquisition is paying off for Canada's largest independent dealer regardless, its chief executive officer says.
GMP acquired FirstEnergy, a prominent boutique brokerage, for $98.6-million to bolster its position in energy banking after its own franchise in Calgary had weakened. The market had looked as if it was recovering while its integration of FirstEnergy got under way, but the rebound stalled.
Harris Fricker, GMP's CEO, said a combination of factors have conspired to muddy the energy outlook, including the stubborn global glut of crude oil, uncertainty over anti-trade measures by U.S. President Donald Trump and a shift in capital flows to U.S. regions that are less pricey to develop than Canada's oil sands. The brokerage is not banking on a quick return to the boom years, though.
"Look, $100 [U.S.] a barrel is nice, but it's not necessary," Mr. Fricker said in an interview at GMP FirstEnergy's office in Calgary. "The industry has been in the vanguard of driving technologies to lower the cost and impact of extraction. That's not going to change. We certainly see viability way below that. We also see, hopefully, a growing recognition nationally of the importance of this region."
The purchase has brought "cross-pollination" to the merged organization, as the units deal with each others' clients. Previously, FirstEnergy's client base was largely energy-focused, and now the Calgary team does business with GMP's wider range of portfolio managers. The vast majority of the Calgary office staff came from FirstEnergy, and some of its principals have senior roles at the new operation.
"We effectively threw them the keys in Calgary, in terms of the quality of the franchise that they had. We had some excellent people who are now part, but it's not a mystery as to why we're sitting in FirstEnergy offices," the 52-year-old investment-industry veteran said.
The Toronto-based dealer is slated to report its first-quarter results on Thursday, and is holding its annual meeting at the Petroleum Club in Calgary.
The acquisition came as the energy-focused investment-dealer business has shrunken amid the downturn in oil and gas that is now well into its third year.
In recent months, the deal flow included a few very large transactions, largely Canadian companies buying the oil sands assets of international players. The major bank-owned dealers have dominated that business.
Merger and acquisition activity for the rest of the year will depend on buyers and sellers sensing stability in oil markets and the Canadian government's response to Mr. Trump's moves to reduce corporate taxes, relax emission regulations and impose protectionist measures in the United States, he said.
"That will be a major factor on how our industry is viewed. The fact that we're captive to a market run by our major competitor with no ability to move product to tidewater on either coast … is fairly daunting," Mr. Fricker said.
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Jeffrey Jones