The banking giant will pay up to $625m in shares for the money manager
By Melissa Shin
Bank of Montreal is buying Burgundy Asset Management Ltd., boosting its wealth management business by adding an established Canadian firm that manages money for affluent individuals, pensions and foundations.
The bank will pay C$625 million ($456 million) in shares, with 20% of that amount conditional on Burgundy maintaining a minimum level of assets under management for 18 months after the deal closes.
Toronto-based Burgundy had about C$27 billion under management at the end of May, with 150 employees operating out of offices in Toronto, Vancouver and Montreal. Co-founders Tony Arrell and Richard Rooney and Chief Executive Officer Robert Sankey will stay with the business, according to the statement.
“In our view, the purchase price of 2.3% of assets under management represents reasonable value to expand BMO’s high-net-worth client base,” wrote John Aiken, equity analyst with Jefferies Financial Group Inc.
Desjardins Securities Inc. analyst Doug Young agreed the price was “in line with similar past transactions,” and said the deal makes sense as part of BMO’s plan to reach 15% return on equity in the medium term.
The Burgundy acquisition, which is expected to close by the end of the calendar year, continues a trend of consolidation in Canada’s wealth-management sector, where the country’s largest banks dominate.
In 2018, Bank of Nova Scotia bought independent firms Jarislowsky Fraser and MD Financial in an effort to expand its institutional presence. Last year, Canadian mutual fund manager CI Financial Corp. struck a deal to go private in a C$4.7 billion deal backed by Abu Dhabi’s Mubadala Capital.
Bank of Montreal’s wealth-management division had about 6,400 employees and C$438 billion under management as of April 30. The business, which earned 19% of its net revenue in the US last year, has enjoyed a boost in recent months from stronger global markets and net new asset flows. The division also includes insurance, asset management and online investing businesses.
The lender has said it wants to expand its client base in part by “growing distribution in core markets across North America.”
Burgundy’s investment style leans toward value stocks, with a heavy emphasis on trying to buy the shares of higher-quality companies. About 45% of its US equity holdings were in consumer discretionary and financial stocks as of March 31, according to data compiled by Bloomberg from its latest 13-F filings. None of the Magnificent Seven tech stocks were among its top 10 holdings.
More than half of Burgundy’s institutional client business is in Canada and 37% is in the US, according to its website.
KMS Capital, Origin Merchant Partners and PJT Partners advised Burgundy on the transaction, while BMO was advised by its capital markets division.
Copyright Bloomberg News
