Richardson GMP has “host of options” for potential sale

By Jessica Bruno | November 2, 2016 | Last updated on November 2, 2016
3 min read

Richardson GMP has the “good dilemma” of entertaining multiple interested buyers, says GMP Capital CEO Harris Fricker, but he adds the wealth management firm could get along fine on its own.

“We have a host of options, luckily, that are all pretty darn attractive,” he told analysts on a third-quarter conference call this morning.

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The company is reportedly in talks with TD, but Raymond James Canada, National Bank of Canada and Industrial Alliance are also considered serious bidders, Scotia Capital said in an April 2016 research note.

“Are there players who are interested in acquiring that franchise? Yes. Have there been expressions of interest over the years in acquiring the franchise? Absolutely,” Fricker said. “We consider everything and are constantly assessing what we think is the best outcome for shareholders and employees.”

RGMP is co-owned by GMP (about 30%), the Richardson family (about 30%) and its investment advisors (40%). The firm’s shareholder agreement has a buyout clause saying that on or before November 15, 2016, all three shareholder groups have to agree to start the buyout process, and GMP will have first dibs on a purchase. Come November 16, any of the three can initiate the process unilaterally.

“It feels like we’ve been leading up to this time for a few years,” said Scotia Capital analyst Sumit Malhotra on the call.

Richardson GMP stats

Number of advisor teams: 198

Assets under administration: $28.3 billion, up from $27.2 billion in 2014

Households served: 40,000

Average AUA per advisory team: $143 million

GMP stake in Richardson GMP: 31%

Richardson GMP adjusted EBITDA: $30.9 million, down from $53.1 million in 2014

Richardson GMP net loss before tax in 2015*: $400,000, down from $7.6 million income in 2014

GMP Securities’ share of the Macquarie Private Wealth integration cost: $4.1 million

*without adjusting for GMP’s proportionate interest. Source: GMP third-quarter conference call, Nov. 2, 2016 and GMP Capital 2015 Annual Report.

Based on 2% of its assets under administration, RGMP could sell for more than $500 million, Malhotra reported in September. At the end of its third quarter, RGMP’s assets under advisement totaled $28.3 billion. It had 198 advisory teams, and average assets per team of $143 million.

Two percent of current AUA equals $566 million.

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RGMP’s adjusted EBITDA in the third quarter was $10.9 million, and its revenue of $7.7 million was up 9% over the same quarter last year. Fricker explained the increase was due to higher investment management fees, as well as higher commissions as client assets went up 10%.

Fricker said the three shareholder groups have been working well together, including in a cost-reduction initiative that started 18 months ago.

“We built a great business with our partners over the past 10 or so years, and there’s absolutely nothing stopping us from continuing to build the business going forward on the same basis,” he said.

Reinvesting after a sale

If GMP Capital were to sell off its wealth management arm, the parent company would likely pass cash from the sale on to shareholders as either buybacks or dividends, said Fricker.

GMP recently bought broker First Energy in a bid to grow its deal capacity, but Fricker said opportunities like First Energy – which had little business overlap with GMP’s existing oil and gas and mining clients – are rare in Canada.

“We don’t foresee an acquisition, and that’s simply because I’m not sure who we’d buy and how we’d integrate them,” he said. Instead, the company will focus on hiring individual deal teams in non-commodities sectors.

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Jessica Bruno