(Closes shares in sixth paragraph.)
Dec. 15 (Bloomberg) -- Canaccord Financial Inc., Canada’s largest non-bank brokerage, agreed to buy Collins Stewart Hawkpoint Plc for 253.3 million pounds ($393 million) in its largest takeover to add wealth management in the U.K. and extend its investment banking business.
Collins Stewart shareholders will receive 96 pence a share, including 57.6 pence in cash and 0.072607 of a share, Toronto- based Canaccord said today in a statement. The offer is almost double Collins Stewart’s closing price of 50.5 pence yesterday. Canaccord had its biggest decline in four months.
“It seems like an awfully large premium to pay, especially in this market and especially for a financial-services company,” said Ian Nakamoto, director of research for MacDougall, MacDougall & MacTier Inc. in Toronto, which manages about C$4 billion ($3.9 billion) and doesn’t own Canaccord shares.
Canaccord has been looking to buy firms in the U.K. to expand in brokerage and wealth management and considered a bid this year for London-based Evolution Group Plc before ending talks in September. Canaccord and Collins Stewart had been working on the deal for about six weeks.
“We wanted to get greater scale in the U.S., greater scale into the wealth management business in the U.K. and get a listing capability in the Asia-Pacific region,” Canaccord Chief Executive Officer Paul Reynolds said in an interview. “It hits all points we needed in our business.”
Canaccord fell 8.2 percent to C$7.80 at 4 p.m. in trading on the Toronto Stock Exchange, its lowest since July 2009. London-based Collins Stewart rose 75 percent to 88.5 pence.
London’s brokers are struggling after the European sovereign debt crisis brought the pace of mergers and stock offerings to a standstill and crimped income from trading equities in the region. The average value of European stocks traded daily this year tumbled by about 58 percent from the peak of 2007, according to data compiled by Bloomberg. Faced with a dearth of revenue, firms are closing, seeking buyers or trying to reduce costs.
Altium Capital this month closed its securities business, saying the “outlook remains bleak for U.K.-centric brokers.”
Collins Stewart said on Nov. 18 revenue for the four months ended Oct. 31 would decline 16 percent from a year earlier. Assets under management dropped to 7.8 billion pounds at the end of October, from 8.1 billion pounds in June, the firm said.
“It’s an opportunistic time to expand our business in areas where we have needs, and high-quality businesses like this are normally not available or just too expensive when times are better,” Reynolds said.
Canaccord will finance the acquisition with cash on hand and a credit line from Canadian Imperial Bank of Commerce, Canada’s fifth-biggest bank.
This marks Canaccord’s fourth acquisition in two years, and expands the firm’s investment-banking operations into Singapore. Last month, Canaccord bought a 50 percent stake in BGF Capital Group Pty Ltd., a dealer with operations in Australia and Hong Kong. In January, Canaccord closed a takeover of The Balloch Group in China. Canaccord expanded its investment-banking business with its C$286 million takeover of Genuity Capital Markets in April 2010.
Reynolds said there “definitely” will be some “redundancies” in the U.S. and U.K. and cost savings in the U.S. securities business. The transaction will add to earnings in the first year before any cost savings.
“We should be able to drive down significant costs and significant revenue synergies in both the U.K. and the U.S. in our existing businesses,” Reynolds said. “It gives us greater scale in those markets and in return, we hope, greater profitability.”
Collins Stewart advises clients on share sales and mergers and executes trades on behalf of institutional and private clients. The firm employs about 850 people, compared with about 1,524 at Canaccord.
“The appeal is it’s a strategic fit,” Collins Stewart CEO Mark Brown said “We weren’t looking to sell the firm; we’re taking it from a position of strength. Markets are tough, we know that, but I’ve got the support of all the shareholders.”
Brown will become CEO of Canaccord’s U.K. and European operations, called Canaccord Genuity Ltd., with overall oversight for operations in the U.K., Europe and Asia-Pacific after the deal closes, Canaccord said in a separate statement. Tim Hoare, the current CEO of Canaccord Genuity Ltd., will become chairman of the unit. Neil Darke will remain CEO of the Collins Stewart Hawkpoint wealth-management business.
The deal is expected to close in the first quarter of 2012 pending regulatory approvals.
Nomura Holdings advised Collins Stewart. Keefe, Bruyette & Woods advised Canaccord.
--With assistance from Liam Vaughan in London. Editors: David Scanlan, Steve Dickson
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