Canaccord Financial Inc. (CF), Canada’s largest non-bank brokerage, agreed to buy Collins Stewart Hawkpoint Plc for 253.3 million pounds ($393 million) in its largest takeover, expanding the wealth management and investment-banking businesses in the U.K.
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 three years.
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 Evolution Group Plc before ending talks in September.
“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,” Canaccord Chief Executive Officer Paul Reynolds said in an interview.
Canaccord fell 13 percent to C$7.42 at 11:35 a.m. in trading on the Toronto Stock Exchange, its biggest drop since Nov. 20, 2008. London-based Collins Stewart rose 74 percent to 88 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, the 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 the third acquisition by Canaccord this year. The firm 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 in April 2010 with its C$286 million ($277 million) cash-and-stock takeover of Genuity Capital Markets.
Reynolds said there “definitely” will be some “redundancies” in the U.S. and U.K. and cost savings in the U.S. securities business.
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,” said Collins Stewart Chief Executive Officer Mark Brown. “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.”
Nomura Holdings advised Collins Stewart. Keefe, Bruyette & Woods advised Canaccord.
(Canaccord and Collins Stewart Hawkpoint will hold a conference call to discuss the transaction at 12:30 p.m. Toronto time at 1-888-231-8191 in North America or 0-800-051-7107 in the U.K. The call will also be webcast at www.canaccordfinancial.com)