Investors welcome Gluskin Sheff deal
Another major deal in Canada’s wealth-management world is highlighting the potential value of cross-selling to highnet-worth clients, a segment that remains sought-after in the face of disruption brought on by low-fee investing products.
On Friday, Toronto-based private-equity firm Onex Corp. announced it was making a $445-million bid to buy Canadian wealth-manager Gluskin Sheff + Associates Inc., a deal the companies said would “broaden the product suite available” to Toronto-based Gluskin Sheff ’s high-networth and institutional clients.
“By combining Gluskin Sheff ’s public securities investing platforms with Onex’ private equity and private debt platforms the clients of both firms will have greater investment options,” said Gerry Schwartz, chairman and chief executive of Onex, in a release.
Investors have smiled on the match, which is subject to approvals and closing conditions. Shares of Gluskin Sheff jumped more than 29 per cent Monday, pushing the stock price past the $14.25 per-share offer made by Onex, whose shares also rose Monday.
Canaccord Genuity analyst Scott Chan noted that potential benefits of the deal included “adding (Gluskin Sheff’s) strong distribution capabilities in the attractive (high-net-worth) clientele space” and broadening Onex’s investing capabilities by adding equities, hedge funds and investment grade credit.
Chan said the “cross-selling capabilities” should also help Gluskin Sheff retain clients, after the firm saw its assets under management decline to $8.2 billion as of Dec. 31, 2018, down $700 million from Sept. 30 of last year.
“Commanding such a multiple on a standalone basis would, in our view, require a material turnaround in net flows as well as elevated performance fees both of which will be challenging to achieve near term,” wrote CIBC Capital Markets analyst Marco Giurleo in a note on Gluskin Sheff.
“On the other hand, a combination with a reputable partner such as Onex provides an opportunity to stabilize client flows and enhance the earnings power of the company by introducing highly coveted alternative investment strategies.”
A cross-selling-related rationale was also given in connection to a mega-deal in the wealth-management sector last year: Bank of Nova Scotia’s $2.6-billion takeover of MD Financial Management.
That deal, says a Scotiabank presentation, gave a chance to add market-share in the wealth business and “capture primary banking relationships” in the high-networth area in which doctor-focused MD Financial had specialized.
The Onex-gluskin Sheff deal (expected to close in the first half of 2019) includes a $13.3-million break-fee Gluskin Sheff would pay to Onex if the transaction doesn’t close for certain reasons, including if a superior bid comes along.
RBC Capital Markets analyst Geoffrey Kwan said they believe the deal “is likely to be successful.”