For the approximately 60 advisors who went from Macquarie Private Wealth to Richardson GMP in September 2013, and then to Dundee Goodman Private Wealth on January 13, 2014, the signs on their doors will change for the third time in as many years.
Subject to regulatory approval, those signs will belong to Euro Pacific, a Toronto-based independent wealth management and brokerage firm. The transaction, announced January 21, 2016, comprises 78 advisors, 60,000 clients and $3.5 billion in assets (about $45 million per advisor).
The RGMP-Dundee deal was worth $2 billion in assets and 13,500 clients in 2014, and brought Dundee Goodman to $6 billion in assets and approximately 100 advisors.
Was that deal a mistake?
“Not at the time,” says Richard McIntyre, executive vice-president of Dundee Corporation and head of Dundee Global Investment Management. “If you go back two years, oil was at [about] $105. Our stock price was [$19.57 on January 13, 2014]. At the time it made a lot of sense to invest in that channel.”
Dundee Corp shares closed Monday at $4.74. The sale is expected to result in “approximately $40 million of additional liquidity and ongoing cost savings,” says the company in a release.
McIntyre admits the wealth management arm was operating at a loss.
“We were trying to acquire scale, but we probably would have needed to make more investments,” he says, adding, “I would not be concerned about moving [that group] into a profitable situation; I think we could have, but the capital required was high.”
Enter Euro Pacific.
The firm approached Dundee Goodman at the end of summer 2015, says McIntyre, and Dundee wasn’t interested. But by Q3 2015, “the timing was better, and we sat down and had a conversation. It was relatively quick.”
Euro Pacific CEO David Cusson says he was looking for “a platform where not only could we acquire high-quality professionals, but we could acquire and combine high-quality support in accounting, compliance, branch management, IT, on and on.” He also says there was a cultural fit. “Dundee Goodman had been known for a client-centred approach and entrepreneurial spirit.”
And despite the existing operating loss, “We became comfortable that this would be a profitable acquisition,” says Cusson. “Like any company that has a number of groups, [Dundee Corp.] has macro overhead that has to be allocated out. That is a cost that will not have to be borne by this division coming over here. And, owner-operator firms [like ours] do it better. They’re more efficient in how they deliver service.”
The takeover price isn’t contingent on the acquired advisors staying, says Cusson. That being said, “Our objective is to retain 100%. What I’ve heard from some of [the Dundee advisors] is they’ve felt let down, historically. They’ve felt there were commitments that weren’t followed through on. Our job is to do what we say we’re going to do. We think as they see the platform that we intend to build and resource for them, that they’ll stay.”
As for McIntyre’s comment on terms, he says, “I think we could have gotten a higher price potentially somewhere else, but I wanted to make sure they went to a home that I thought kept with the culture of Dundee.”
He also wanted to avoid layoffs. “They want the business as a going concern,” says McIntyre. “They’re buying all the assets, which includes people, technology and our client base.” As such, EuroPac is also gaining Dundee Securities’ separately managed account program as well as employees from its fixed income, foreign exchange and insurance businesses.
Cusson says EuroPac “has no view toward layoffs,” and may bring more resources to the platform. “It is our plan to continue to look at other [acquisition] opportunities.”
As for clients, they won’t have to visit new offices — all advisors will remain in their current locations. And, since Fidelity Clearing Canada is the carrying broker and custodian for both firms, “all historical transactions and performance will port over,” says Cusson. “We’re going to work with IIROC to determine the amount of re-papering and the timing of that. History tells us IIROC will give us flexibility [so] we can take care of that in quieter times.”
Cusson’s message to his new advisors? “We do not have competing strategic objectives,” he says. “We are in it for the long-term – everybody says that, but we are a relatively young management team; 40s, early 50s. We are owner-operators. This isn’t a corporate item on a balance sheet that will one day become inconvenient. This is our core business.”
What’s next for Dundee Goodman
After this deal, Dundee Goodman will be focusing on its investment counselling and alternative asset management businesses. In December 2015, Dundee hired Adam Donsky as Chief Investment Officer at Goodman & Company, Investment Counsel Inc. “He is going to be building a series of high-net-worth products for us” to launch in Q1 2016, says Dundee’s Richard McIntyre. “We’re also building a private equity business as well, which will be part of that overall offering.”
McIntyre says Dundee currently has one investment counsellor, and “we’re talking to a couple of others who [will] bring books of business with them.” He says he doesn’t have a target for how many counsellors to hire, but he wants each to have “100 clients max.”
He’s looking for portfolio managers, “generally CFAs; discretionary. But there would be opportunities for people who may not be traditional portfolio managers. They may be lawyers or accountants.”
Could any of the departing Dundee Goodman advisors have become investment counsellors? “I think absolutely, but the problem is when you’re doing these types of deals it’s hard to split up the business, because many share the same office space. That was not something we thought would be an easy thing to do.”
Who is Euro Pacific?
Euro Pacific is “an unusual company to some people,” acknowledges Dundee Goodman’s Richard McIntyre. “But when we actually sat and talked about their vision, I was certainly very impressed.”
“We are an expanding, profitable firm,” says David Cusson, Euro Pacific’s CEO. “We offer an environment where high-quality sales professionals can deliver high-quality service in a flexible way.”
He defines flexibility as “being responsive to client needs. It might mean, for instance, a high-net-worth client would like to participate in a private placement and having a system that can accommodate that. Sometimes it’s facilitating a parent who wants to pay for their son or daughter’s tuition out of their brokerage account, [which] often can be frustrating [elsewhere].”
EuroPac’s biggest takeover to date has been Toronto-based Pope & Company, which it bought in October 2015. CEO Francis Pope took his book to EuroPac, bringing its advisor count to 22. The Dundee acquisition, if approved, means Euro Pacific will have 100 advisors and $4.2 billion in AUM (up from $700 million).
As part of the deal, Dundee and Euro Pacific will enter into a distribution agreement for “future differentiated products.”