By TIM KILADZE
Thursday, December 13, 2018
GMP Capital Inc.'s near-decade of international expansion is ending, with the independent dealer selling its U.S. fixed-income division.
GMP Capital acquired the New York-based business, formerly known as Miller Tabak Roberts Securities, in 2011 for US$44-million. The sale price was not disclosed, but the business had been struggling of late. On recent quarterly calls, chief executive Harris Fricker made several mentions of "lower fixed-income client trading revenue in our U.S.
The decision to unload the U.S. fixed-income business is significant for several reasons. The acquisition was the first major investment made by Mr. Fricker after he took over in late 2010, and it signalled a major push to expand beyond GMP's home market.
The sale also marks another example of an investment that GMP has struggled to make work. Other deals and expansions that failed to take off include a push into Australia and the recent merger with FirstEnergy.
GMP declined to comment.
GMP is by no means the only independent investment bank that has had to reconsider its footprint. Junior energy and mining markets have been eerily quiet for a number of years, and independent dealers used to dominate these sectors.
Most notably, GMP's chief rival Canaccord Genuity has endured layoffs and scaled back its global ambitions after spending more than a decade opening offices in 12 countries.
At smaller firms, the impact has been even more severe.
Between 2013 and 2015, more than 50 boutique dealers shut down altogether, according to data from the Investment Industry Association of Canada.
GMP, however, is feeling the pinch lately.
While Canaccord Genuity has rebounded in 2018 by riding the cannabis boom, GMP is having trouble convincing investors that it is on solid footing. The firm's shares were trading at $1.81 on Wednesday.
GMP's acquisition of a U.S. debt division was designed to broaden its product offering.
The investment bank built a reputation on helping clients raise equity, and adding a fixed-income trading business was supposed to help mid-sized clients issue debt as well.
Because Canada's high-yield market is almost non-existent, the thinking was that GMP could help such clients issue bonds in the United States.
The problem, though, is that many of these clients were commodity explorers and producers.
After the mining commodity supercycle collapsed, and then the energy boom went bust, the business opportunities dried up.
Yet, the decision to sell the unit is not an isolated event. After pushing heavily into London and Australia between 2010 and 2012, GMP announced in early 2016 that it would shutter those offices. (The dealer also eliminated its dividend at the same time.)
Instead, GMP has emphasized a focus on its home market for the past two years - and the latest sale will make this focus even more prominent. However, while closing and selling foreign operations helps cut costs, Canada remains a tough market for its traditional business.
In 2016, GMP bought FirstEnergy, a prominent boutique brokerage based in Calgary, for $98.6-million. Earlier this year, GMP cut 10 per cent of the staff from its Canadian capitalmarkets business - many of which were from the Calgary office. The decision was made to improve competitiveness and profitability in light of the industry's "operating realities," Mr.Fricker said at the time.