Peter Hadekel of the Montreal Gazette reports, Fiera Sceptre hopes to go global with Natcan acquisition:Montreal money manager Jean-Guy Desjardins has had a vision for a while to build an investment firm that can compete on a North American scale.He took a big step toward making that dream a reality Monday when his publicly-traded company, Fiera Sceptre, agreed to a deal with the National Bank of Canada.
Fiera will purchase the bank’s asset management arm, Natcan Investment Management Inc., in a transaction valued at $309.5 million.
In exchange, National Bank takes a 35 per cent stake in Fiera Sceptre’s Class A non-voting shares with an option to increase to 40 per cent over the first two years. Jean-Guy Desjardins retains control of the Class B voting shares in the merged firm, to be called Fiera Capital.
The deal will create one of the top five independent management firms in Canada, with $54 billion in assets under management, and provide new avenues of growth for both sides.
It’s good news for Montreal’s financial community, at least in the long term, as Fiera Capital aims to grow to $100 billion in assets under management within five to six years, Desjardins said.
“That will create a large number of growth opportunities for Fiera in Montreal.”
In the short term, the purchase of Natcan will create about $10-million in cost savings and lead to some job losses, National Bank chief executive Louis Vachon conceded.
But he added that “in the long term I am convinced that having a much larger integrated money manager will make Montreal a better place for the financial community.”
The deal suits the ambitions of the National Bank which has been bulking up its wealth management business with a series of recent acquisitions including Wellington West and HSBC Securities.
“I approached Jean Guy about a year ago to discuss this transaction,” Vachon said. “As you know, we continue to put a lot of priority on our expansion in the wealth management space across Canada.”
But while the bank was strong on retail distribution, it was weaker on the so-called manufacturing side – developing investment products and strategies for wealth management.
“We came to the conclusion that we did not have sufficient scale in Natcan to continue to grow in the current environment, where scale is important,” Vachon said. “So we felt we’d be better to partner up with Fiera.”
Vachon wasn’t prepared to look at a long list of potential partners. “Clearly we did not go through a process where we approached 50 different organizations. From a cultural and personal standpoint, we felt we had a better alignment with Fiera, given its head office is in Montreal.”
Desjardins, who has built Fiera through acquisition while retaining majority control, wasn’t about to do a deal that would see control slip from his hands.
The two sides were able to negotiate a structure that preserves his voting control, unless the parties have a fundamental disagreement that would trigger a put option on 75 per cent of his shares.
“When Louis approached me, I concluded quite rapidly that this could potentially be a very attractive opportunity. Natcan has three investment capabilities that are very competitive in the marketplace, that we don’t really have at Fiera or where we would need additional bench strength.”
These include U.S. and global portfolio management of small cap stocks, liability-driven investment strategies for pension funds, and management of corporate and high yield bond portfolios.
“So from a pure investment management point of view, this was attractive to us because we had a pure add-on to our capabilities.”
The second factor, he said, was getting access to the bank’s retail distribution. “About 75 per cent of our business was institutional, now it’s going to be 55 per cent.”
Fiera currently manages about $5 billion for the Mouvement Desjardins group and that connection will continue despite the new alliance with the National Bank.
Jean-Guy Desjardins stresses that scale is important in the money management business “not only to attract talent but also to competitively remunerate talent.”
And from a profit margin point of view, the bigger the better. “If you have someone managing a billion dollars with a team of four people, he could probably manage $5 billion with the same team.
“The marginal profitability on additional assets once you have the infrastructure in place is very high.”
I found out about this deal last week but rumors have been swirling for months now. Natcan has been struggling for the longest time and I can't say I'm surprised by this announcement.
Is this a good thing for Montreal's financial community? Well, put it to you this way, there isn't much else happening in Montreal. And if you ask me, there is a lot of underutilized and underpaid alpha talent in this city working all over, even within the National Bank.
You have to give credit to Jean-Guy Desjardins. He sold TAL to CIBC (now CIBC Asset Management) at a nice premium before the tech bubble burst, making a lot of people stinking rich. One of them is a former boss of mine who told me he "owes everything to Jean-Guy Desjardins" (at least he admits it!). I know of others who in their wildest dreams couldn't have achieved their wealth without his help.
In the money management business, there are two types of people. Greedy, insecure weasels who manage their careers by backstabbing people, and then there are guys like Jean-Guy Desjardins, a consummate deal maker who knows how to sell and isn't afraid to recruit and pay talented individuals, giving them an equity stake in the firm (at least that is what he did at TAL, he spread the wealth).
Will Fiera Capital be another Montreal success story? Again, that all depends on who they attract to this new firm. They need more people who can produce quality products, focusing on alpha generation. I know guys and gals in Montreal and Toronto that Jean-Guy Desjardins (and top global hedge funds) would kill to have on his team but to recruit them, he'll have to sweeten the deal because they have entrepreneurial minds just like him and aren't about to walk away from their dreams.
Below, Marino Valensise, chief investment officer at Baring Asset Management Ltd., discusses Europe's debt crisis, the Chinese economy and equities. He speaks with Mark Barton and David Tweed on Bloomberg Television’s “On the Move.”
