By JAMES BRADSHAW
Wednesday, July 11, 2018
Toronto-Dominion Bank is jockeying for position as a leading asset manager for institutional clients with a $792-million cash-and-stock deal to buy Regina-based Greystone Managed Investments Inc.
Privately owned Greystone is well-regarded among a dwindling group of independent money managers that have become prime targets for acquisitions.
With $36-billion in assets and a specialization in alternative investments - real estate, mortgages and infrastructure - the firm caters to institutional investors such as pension funds, insurance providers and foundations.
Combined with TD's existing wealth operations, the Greystone acquisition will bring the bank up to about $393-billion in assets under management (AUM), making it the largest manager of Canadian assets for investors, although Royal Bank of Canada's global business is still larger.
The deal comes in a period of consolidation in wealth management, as big banks snap up smaller independent players, and new digitally focused competitors such as Wealthsimple add lowcost alternatives to the market.
Even as greater scrutiny of fees creates pressure on banks, many lenders have invested in wealth management in anticipation of a demographic bulge as baby boomers reach retirement age.
One key rival, Bank of Nova Scotia, has already acquired two prominent Canadian independents this year to bolster its wealthmanagement arm: Scotiabank paid $950-million for institutional-fund manager Jarislowsky Fraser in February, and $2.6-billion to buy MD Financial Management, which caters to doctors, in early June.
Yet Leo Salom, TD's group head of wealth management, said the impetus to acquire Greystone came from a desire to fill gaps in its offerings, rather than a need to grow its asset base.
"What was more important to us was the capabilities addition that Greystone represented to us," Mr. Salom said, "not a consolidation play for the sake of consolidation."
Greystone has been on TD's radar for some time, and the two firms began discussions in midJanuary under a non-disclosure agreement. Founded in 1988, Greystone has about 200 employees and trumpets its "prairie roots." The firm's specialty is serving institutional clients, but it also offers equities and fixed-income products. The combined entity, to be known as TD Greystone Asset Management, will still have its headquarters in Regina, with offices in Toronto, Winnipeg and Hong Kong.
TD was attracted to Greystone's large institutional client base in Western Canada, "where we might be a little thinner in terms of our coverage," Mr. Salom said.
More specifically, TD plans to tap Greystone's toolkit to build products in alternative assets and international equities for TD's institutional clients, such as pension funds. The bank will then repackage those capabilities and cross-sell them to high-net-worth clients. "I think that's really where there are great growth opportunities for us," said Bruce Cooper, chief executive and chief investment officer for TD Asset Management. Furthermore, Greystone is creating a global real estate product that clients have requested, and TD expects to channel it through the bank's U.S. footprint, Mr. Salom said.
For Greystone, a marriage with TD opens access to a much larger distribution network for its products than it has on its own - not to mention relief from the mounting challenges facing independent money managers.
"In this business, you grow or you shrink," said Robert Vanderhooft, Greystone's CEO and chief investment officer, who will lead TD Greystone Asset Management.
"We're really quite good at manufacturing product. As an independent, distribution is harder, and we see obvious synergies with TD."
As the roster of successful institutional money managers gets shorter, their scarcity commands a premium. The deal gives Greystone an enterprise value of $730million, and factors in $105-million in seed capital that Greystone poured into various products, as well as other adjustments. TD is paying a price-to-AUM multiple of 2.2 per cent, or slightly less than the 2.4 per cent Scotiabank paid for Jarislowsky Fraser.
"Based on past transactions, we believe TD's purchase price was fair considering the scarcity value associated with increasingly more limited asset managers in Canada that have scale," said Scott Chan, an analyst at Canaccord Genuity Group Inc.
TD will pay at least 30 per cent of the total price in shares and the remainder in cash, although Greystone shareholders have an option to take more of the total price in shares, to a maximum of 50 per cent.
That will be crucial to the bank's plan to retain Greystone's talent: About $170-million in shares issued to Greystone's employee shareholders will be held in escrow for two years, subject to continued employment. "We were very keen on trying to retain the team," Mr. Salom said.
The deal is expected to close before the end of 2018, subject to regulatory approval.
TORONTO-DOMINION BANK (TD)
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