CI Financial says its acquisition of Sentry will help the firm grow a stronger sales team and tap into Sentry’s relationships with IIROC advisors.
CI announced on Thursday a deal to acquire Sentry for $780 million, mostly in stock and about $230 million in cash.
The agreement, subject to regulatory approvals, is expected to close around Sept 29 and will combine two of the country’s “largest independent active asset managers,” CI says, leading to sales and cost synergies by 2019.
“We’re going to have a significantly larger sales force. We’re going to have an additional, new brand. We’re going to be able to spread costs over a larger asset base. All of those, in my mind, are very strategic,” Peter Anderson, CI’s chief executive, said on a conference call with analysts. “When we had more salespeople, we got more business, and I am very confident that will happen again.”
CI says Sentry will remain a standalone brand. Following the deal’s close, the company will be offering portfolio management under the Harbour, Signature, Cambridge, CI Multi Asset Management and Sentry names. CI also acquired First Asset Capital, an ETF provider, in 2015.
Sentry, which recently paid a $1.5 million penalty and replaced its CEO amid allegations of improper sales practices, managed over 45 mutual fund mandates and other investments with about $19.1 billion in assets as of July 31, CI says.
The transaction will grow CI’s assets under management by 16% to about $140 billion, from $120.4 billion as of July 31, a release said.
“We will look to consolidate vendors and use our size to negotiate with those vendors. Our IT and back office functions are highly scalable,” Douglas Jamieson, executive vice-president and CFO, said on the call.
Anderson said he’s optimistic about the power of the combined sales force and Sentry’s channels into IIROC brokers.
“They have a very strong relationship with the broker, or IIROC, channel, and that’s a focus for us at CI,” Anderson said. “As you look at the relationships that Sentry advisors have with key IIROC firms and advisors, a lot of those are where we want to strengthen our bench,” he said. “That’s where we see the biggest opportunity for CI.”
Anderson added: “This is an industry with overcapacity of active asset management, where scale is definitely a competitive advantage.”
One analyst, Desjardins’ Gary Ho, asked whether CI plans to adjust Sentry’ slightly higher fees. Anderson responded that CI is comfortable with fees as they are.
CI released its Q2 results on Thursday, showing earnings per share of 37 cents, down from 47 cents per share a year earlier. The company announced a $45-million settlement with CRA for outstanding notices of reassessment for the years 2006 to 2008.
Sheila Murray, CI’s president, said on the call that CI had been confident in its case but took the tax hit to remove “litigation fatigue.”
“Despite the ongoing headwinds in our industry, including fee pressure, regulation, new competition and the active/passive debate, business continues to strengthen,” Anderson told analysts.
CI says the deal formed after the firm was approached through a confidential auction process. It comes amid industry consolidation such as IA Financial’s purchase of HollisWealth and Raymond James’ deal for 3Macs.
Ron Fox, chief executive of Glidepath Portfolio Services in Toronto, suggests that large wealth management firms focused on products tend to lack personalized services. “Advisors don’t need more generic, one-size-fits-all industry products to sell,” Fox says. “They need custom, client-focused solutions.”
The mutual fund industry is at risk, he adds, as the model gets disrupted by advisors empowered with sophisticated technology and tools.
“The power has shifted to the financial advisor as the relationship manager,” Fox says. “Custom, goals-based portfolio management is no longer a service reserved for high- and ultra-high-net-worth clients, and the reliance on mutual funds is no longer needed.”
CIBC Capital Markets and Davies Ward Phillips Vineberg LLP acted as advisors to Sentry for the deal, while Blake, Cassels & Graydon LLP were advisors to CI.