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An oil pump jack pumps oil in a field near CalgaryTODD KOROL/Reuters

Scotia Capital Markets Inc. analyst Sumit Malhotra is not a big fan of GMP Capital Inc.'s plan to buy rival investment bank FirstEnergy Capital Corp.

GMP, Canada's second-largest independent brokerage firm, announced late on Thursday it is forking over $98.6-million for Calgary-based FirstEnergy in a deal that amounts to about 27 per cent of GMP's market value.

"The purchase of an energy-centric boutique was not the shareholder-friendly capital deployment we expected to see," Mr. Malhotra argued in a note to clients on Friday.

"We have liked the fact that the company has avoided purchases of other investment banks, given the difficulty in getting these deals to work, i.e, 1+1 = 1.5."

GMP has historically built its investment banking business through hiring rather than acquisitions. But in an interview with The Globe and Mail, GMP's chief executive officer, Harris Fricker, defended the boutique's decision to buy FirstEnergy, stressing how highly he rates his competitor's banking talent and the like-mindedness of the two banks in culture.

"We've worked on several deals together," Mr. Fricker said. "We've also observed FirstEnergy from a distance and were always impressed, frankly, with how good they were."

In a conference call with analysts, Mr. Fricker was short on specifics on FirstEnergy's financials, saying he could not give much away because the company is still private and the deal has not yet closed. He did say that FirstEnergy has never lost money in 20 years, is currently profitable and that the deal is "decidedly accretive" to earnings.

By all accounts, GMP never seriously considered buying anything else in the Calgary market. Mr. Fricker said that while he thinks "very highly" of Peters & Co. Ltd., the other big Calgary-based boutique investment bank, there were "no personal connections" that would have prompted the two to engage in negotiations.

GMP's history with FirstEnergy goes back many years. For one, Jim Davidson, FirstEnergy's executive chairman, worked alongside GMP co-founders Kevin Sullivan and Michael Wekerle for many years at First Marathon Securities Ltd.

"We have had a cordial but competitive relationship [with GMP] for our entire existence," Mr. Davidson said.

GMP's star has fallen significantly since the end of the great commodity bull run that started in the early 2000s. A multi-year rout in commodities hit the storied boutique hard, with Mr. Fricker admitting on the analyst call on Friday it has lacked success in recent years, particularly in Calgary.

FirstEnergy too has struggled, but has always had a particular niche in its home city that has insulated it from the worst of the downside. This year, it has been a bookrunner on a number of mid-sized energy deals, including Secure Energy Services Inc.'s $150-million issue in March. That same month, FirstEnergy won a piece of the record-breaking TransCanada Corp. $4.4-billion bought deal.

"We noticed that in the trough, all of the independent broker dealers experienced a decline in market share to the benefit of the two dominant independents [FirstEnergy and Peters] in town," Mr. Fricker said.

Even though GMP and FirstEnergy have often cropped up alongside each other in a large number of the syndicates – as much as 53 per cent by one metric, according to Scotia's Mr. Malhotra – there is "little overlap" when it comes to leading deals, FirstEnergy's CEO John Chambers argued.

FirstEnergy shareholders will receive a mix of stock and cash over the next five years, which means they will have serious skin in the game, and an incentive to see those shares rise over the long-term.

The deal will dilute existing GMP shareholders to the tune of 15.5 per cent. GMP's shares, which had risen 13 per cent since the start of the year, initially opened sharply lower on Friday, but quickly recovered, ending up 2 cents to $5.16. Scotia's Mr. Malhotra, who has a sector perform rating on the shares, said in his note that a large stock buyback would have been a better user of cash than making this acquisition.