AGF, Acuity talking synergies

By Doug Watt | December 9, 2010 | Last updated on December 9, 2010
3 min read

It may have come as a surprise to industry watchers, but to hear AGF president Blake Goldring and Acuity CEO Ian Ihnatowycz tell the story, a merger between the two Toronto-based mutual fund firms was only a matter of time.

The two executives use similar terms to describe their companies, such as innovation, integrity, and most of all, independence. AGF has been around since 1957, while Acuity was established in 1990, significant periods of time for independent fund companies in Canada.

“We’re proud of what we’ve accomplished over the last 20 years, Ihnatowycz said on Monday in a conference call after the friendly takeover bid was announced. “But we came to the conclusion that we had to rapidly increase our size to increase our competitive edge.”

“AGF is a well-respected firm and we share similar values – it’s a natural progression for us and an excellent fit.”

Despite the similarities of the two companies, there are several very important differences. Firstly, AGF is much larger, with $51 billion in assets under management, compared to Acuity’s $7 billion. And AGF is much stronger in the retail market, which represents 63% of the company’s AUM; Acuity’s equity products make up less than one-third of its AUM. This is where the synergy starts to make sense. AGF has only 35% fixed income and balanced products compared to Acuity’s 69%.

“[The takeover] allows us to offer key products that are in demand – balanced and fixed income,” Goldring said. “Acuity’s specialty in SRI will allow us to appeal to a broader range of investors in a space that few of our competitors have entered.”

Now, that’s not quite true; a number of “traditional” mutual funds have either bought or created their own line of SRI products, with limited success, notes Toronto-based SRI advisor Sucheta Rajagopal. Remember RBC’s big splash when it announced a line of SRI products managed by Jantzi Research (now renamed as Sustainalytics)? The advertising around that particular new line of funds was underwhelming, to say the least. “AGF, we’ll be watching!” Rajagopal says.

Still, AGF remains optimistic about Acuity’s product line, which includes several SRI funds: Acuity Social Values Canadian Equity Fund, Acuity Social Values Global Equity Fund and Acuity Social Values Balanced Fund (formerly the Acuity Clean Environment Equity Fund, established in 1991 and one of the country’s oldest SRI funds).

“SRI is experiencing significant asset growth worldwide as pensions and other institutional investors are taking note,” says AGF Senior Vice President and Chief Financial Officer Robert Bogart.

There are no immediate plans to change Acuity’s portfolio management team nor its fund lineup and the company will retain the name Acuity Funds Ltd. as a wholly-owned subsidiary of AGF.

Under the terms of the agreement, Acuity shareholders will receive a combination of 60% cash and 40% AGF Class B Non-Voting shares. A portion of the purchase price will be deferred and is subject to an AUM-based adjustment over three years from closing. The acquisition, worth about $325 million, requires regulatory approval and is expected to close on February 1, 2011. Both Goldring and Ihnatowycz both admit that specific fund mergers are a possibility once the two companies are able sit down and discuss such topics.

Ihnatowycz will be retiring from the day-to-day operations of Acuity but is expected to sit on the board of directors of the new company.

  • Doug Watt is an Ottawa-based financial writer/editor and co-founder of SRI Monitor, a blog for socially responsible investors.
  • Doug Watt