By ANDREW WILLIS, CLARE O'HARA
Tuesday, June 18, 2019
GMP Capital Inc. is exiting the capital markets business, selling its investment banking arm to U.S. brokerage house Stifel Financial Corp. for approximately $70-million in a dramatic shift for what was once one of Canada's most successful independent investment dealers.
In the latest sign of consolidation in financial services, GMP Capital's bankers and traders will join St. Louis-based Stifel, which has built a national U.S. platform by making more than two dozen acquisitions during chief executive officer Ronald Kruszewski's 22 years at the helm.
GMP Capital, founded in 1995 by veteran deal makers, made its name raising money for entrepreneurial businesses such as Research in Motion - now BlackBerry Ltd. - and cannabis, mining, and oil and gas companies in recent years. But, like BlackBerry, the Toronto-based investment bank that once boasted a market value of $2-billion is undergoing a transformation. Its core business will now revolve around its 33-per-cent stake in wealth manager Richardson GMP, which has approximately $30-billion in assets and 170 teams of financial advisers.
Once the Stifel transaction closes, GMP Capital plans to buy the remaining 67 per cent of Richardson GMP from its employees and Winnipeg's Richardson family in a stock swap that will make the Richardson clan the company's largest shareholder. GMP Capital will hold approximately $198million in cash. That capital is earmarked for expanding the wealth management platform by recruiting financial advisers and potentially adding new services such as robo-advisers, specialized lending and asset management.
"This transaction is all about turning the focus onto [Richardson GMP], giving it the oxygen, the focus and the capital it requires to become a really powerful force in the wealth management space in Canada as an independent, non-bank-owned firm," said Sandy Riley, CEO of Richardson Financial Group Ltd. He said Richardson Financial is in favour of swapping its stake in the wealth management company for additional shares in GMP Capital, where the family already holds a 24-per-cent stake.
After the Stifel sale, GMP Capital plans to pay a one-time 27.5cent-a-share special dividend to shareholders.
A handful of GMP Capital veterans are expected to depart when the deal is done, including co-founder and deputy chairman Kevin Sullivan.
GMP Capital has faced years of tumult. A downturn in resource markets, declining trading commissions and a failed expansion strategy knocked the firm's market capitalization down to $150million last week. CEO Harris Fricker said it was "frustration" over a declining stock price and the issue of how to best serve clients that drove a strategic review by the board to conclude with the sale to Stifel.
"In thinking about the industry, you ask: Are you growing or declining in terms of your relevance to clients?" said Mr. Fricker, who plans to move to Stifel with most of GMP Capital's senior executives. He said that to stay relevant to GMP Capital's small to medium-sized corporate customers the firm needed far better access to U.S. capital markets, something it could not build on its own.
"The addition of GMP further enhances our institutional business given its strength in the Canadian markets and within the technology, health care, cannabis and energy verticals," Stifel's Mr.
GMP's stock price jumped 13 per cent on news of the buyout Monday, closing at $2.29 on the Toronto Stock Exchange. The company's shareholders and regulators need to approve the transaction, which is expected to close this fall.
More than 50 independent Canadian investment dealers have been acquired in the past five years, leaving approximately 160 firms, according to the Investment Industry Association of Canada. Ian Russell, CEO of the IIAC, recently predicted that the continuing downturn in financing activity and rising regulatory costs will reduce the number of domestic dealers to fewer than 100 in the next two years, closing doors to small-cap Canadian companies looking to raise capital.
This is Stifel's second attempt to build a Canadian franchise.
The firm inherited a team with offices in Calgary and Toronto in 2010 when it acquired U.S. rival Thomas Weisel Partners Group, Inc., which previously paid $150million to buy Canadian boutique dealer Westwind Partners. GMP Capital's Mr. Fricker said Stifel brass decided the Westwind team lacked the skills and relationships needed to build a business and shut the operation down in 2013.
Most significant U.S. investment banks already have offices in Canada, and Stifel executives said the domestic market ranks fourth globally in terms of generating investment banking fees, behind only the U.S., China and Britain. Victor Nesi, co-president of Stifle, said acquiring GMP "not only extends Stifel's business into the Canadian markets but will also enhance our offerings to our U.S. and U.K. clients."
Law firm Goodmans LLP advised GMP Capital on the transaction, while Stikeman Elliott LLP, Lazard Canada Inc. and Sheumack & Co. GMC LLC worked with the special committee of GMP Capital directors.
GMP CAPITAL (GMP) CLOSE: $2.29, UP 27¢ STIFEL FINANCIAL (SF) CLOSE: US$56.30, DOWN 27 US CENTS