Canaccord Genuity Group Inc. (the “Company”, TSX: CF) is pleased to announce that through its UK & Europe based wealth management business, Canaccord Genuity Wealth Management (“CGWM (UK)”), it has agreed to acquire Hargreave Hale Limited “Hargreave Hale”), a leading independent UK-based investment and wealth management business with a total of £8.0 billion (C$13.5 billion) in assets under administration, management and management contract.
The transaction establishes a substantially enlarged wealth management operation in the UK and Europe with over £18.0 billion (C$30.4 billion) in private client assets and over £4.7 billion (C$7.9 billion) in fund management assets and represents another step in the Company’s strategy of growing its global wealth management business and increasing its wealth management contribution to overall group results.
“The acquisition of Hargreave Hale is an important step in our strategy of building a leading independent global wealth management business,” said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. “We view this transaction as a significant development in our long-term strategy of transforming our business mix to grow contributions from our global wealth management businesses, and one that will deliver enhanced value for our clients and our shareholders.” Hargreave Hale is one of the UK’s leading independent investment and wealth management businesses,
providing discretionary investment management and stockbroking services to more than 14,000 private clients, intermediaries, corporations and charities. With a history that dates back to 1897, the firm has maintained an unwavering commitment to offering the highest standard of investment management and advice centred on the principles of accessibility, technical excellence and integrity. Hargreave Hale operates a leading custody and settlement function and has a nationwide presence in the UK with nine offices located in Bangor, Blackpool, Carlisle, Lancaster, London, Norwich, Nottingham, Worcester and York.
Both Canaccord Genuity Wealth Management in the UK & Europe and Hargreave Hale have developed highly complementary, client-centric business models, encompassing discretionary portfolio management, advisory and execution-only stockbroking services, with CGWM (UK) also offering wealth planning. There is a strong geographic fit between the two businesses, with Hargreave Hale further strengthening CGWM (UK)’s London presence and adding its regional office network to expand CGWM (UK)’s footprint within the UK.
The transaction also advances CGWM (UK)’s strategic ambition of developing a leading first-class fund management business, by combining its existing operation with the fund management business of Hargreave Hale. Widely recognised as one of the UK leaders in small- and mid-cap fund management, Hargreave Hale has an exceptional track record of delivering top-quartile investment performance. Giles Hargreave and the wider fund management team will remain with the business and are committed to growing this business within CGWM (UK).
The senior management of Hargreave Hale will continue to have significant involvement and influence, holding key leadership roles within the enlarged group and will be responsible for driving the growth and development of the investment and wealth management business.
“We are delighted to announce the acquisition of Hargreave Hale, which wholly supports our ambitious growth plans for Canaccord Genuity Wealth Management in the UK and Europe,” said David Esfandi, CEO of Canaccord Genuity Wealth Management in the UK & Europe. “The strategic rationale for this acquisition is underpinned by it being complementary rather than duplicative. We are committed to investing in and accelerating the growth of Hargreave Hale’s fund management and private client wealth management operations for the benefit of the clients, staff and shareholders of both firms.”
Mr. Esfandi continued: “I have been extremely impressed by the quality and calibre of our new partners at Hargreave Hale, whose breadth and depth of talent and expertise will be available to our clients.
Together, as one of the leading UK wealth management businesses, we will be particularly well placed to respond to the ever-challenging wealth management environment including an increasingly demanding and more discerning client base.”
Commenting on the transaction, Giles Hargreave, Chairman of Hargreave Hale said: “With its similar business model, shared culture and common values, Canaccord Genuity Wealth Management in the UK represents the ideal partner to continue the successful growth and development of our business. Along with our senior management team, I look forward to working with our new colleagues as we continue to deliver excellent investment and wealth management services for our clients.”
Under the terms of the transaction, CGWM (UK) will pay an initial consideration to the shareholders of Hargreave Hale of £52.0 million (C$87.9 million) and additional contingent consideration of up to £27.5 million (C$46.5 million). Additional contingent consideration, if paid, will be funded from the ongoing cash flow of the business. The contingent consideration is structured to be payable over a period of up to three years, subject to the achievement of certain performance targets related to the retention and growth of client assets and revenues and an amount determined with reference to the fund management business.
It is expected that the acquisition will be immediately accretive to the Company’s adjusted earnings1
. The initial consideration will be funded in part from a credit facility provided to CGWM (UK) by National Westminster Bank plc and HSBC Bank plc in the amount of £40.0 million (C$67.6 million). For the twelve month period ended March 31, 2017, Hargreave Hale recorded total revenue of £48.0 million (C$81.1 million), net income after taxes of £4.4 million (C$7.4 million) and EBITDA excluding deal-related and other non-recurring costs of £8.0 million (C$13.5 million).
Acquisition-related costs comprised of deal costs, transaction fees, and incentive-based payments subject to certain performance criteria are expected to be approximately £16.0 million (C$27.0 million) of which £8.0 million (C$13.5 million) will be expensed at the time of closing, with the balance to be expensed as a significant item over a four-year measurement period.
The acquisition will be effected by a Scheme of Arrangement under the UK Companies Act 2006 and issubject to regulatory approval and approval by shareholders of Hargreave Hale and other customaryclosing conditions. CGWM (UK) has received irrevocable undertakings from shareholders of Hargreave
1: Adjusted earnings is a non-IFRS measure generally referred to by the Company as net income excluding significant items. Significant items include restructuring costs, amortization of intangible assets acquired in connection with a business combination, acquisition-related expense items and other items related to business combinations and disposals as more particularly described in the Company’s Management Discussion and Analysis for the year ended March 31, 2017 and available on www.sedar.com. It is not expected that the acquisition will be accretive to net income as determined in accordance with IFRS for fiscal 2018.
Hale, representing approximately 81.0% of shares outstanding. The acquisition is expected to be completed prior to the end of the third quarter of fiscal 2018.