Edgecrest Capital Buys Stonecap Securities in Canada

Edgecrest Capital Holdings Inc., an independent Canadian brokerage, bought Stonecap Securities Inc. to expand its investment banking, sales, and trading units.

Edgecrest is also buying Stonecap’s U.S. subsidiary, according to an e-mailed statement from the company today. The price wasn’t disclosed.

The Toronto-based firm that was created last year is adding 10 employees from Stonecap, including two investment bankers, three salespeople and four research analysts. Edgecrest expects the transaction to close Feb. 17.

“When markets are absolutely terrible and in the dumps is when you can attract the people in the brokerage business,” David Beatty, 56, chief executive officer of Edgecrest, said in a phone interview from Toronto. “You can only kick a dog so far down into the hole, and then you make a contrarian move. That’s why we did this.”

The deal provides the company with expanded coverage of energy and mining industries when Canadian brokerages are underperforming or shuttering their doors. The acquisition also adds to Edgecrest’s goal of being one of the largest three Canadian independent brokerages in small-cap mining, international energy, and oil field services in the next four years.

Following the acquisition, Edgecrest, which became a member of the Investment Industry Regulatory Organization of Canada on Sept. 12, will have 23 employees. Beatty aims for 35 employees by the end of the year and 50 employees in two years.

Adding Bankers

He’s currently in talks to add three teams of bankers, analysts, and salespeople from other large independent firms by the end of 2015. Each team currently makes at least C$10 million ($9 million) in annual revenue, said Beatty, who co-founded Yamana Resources Inc. and also co-founded Westwind Partners Inc., an independent investment firm.

Boutique securities firms in Canada are facing a downturn as chronic weak business, increased regulation, and rising competition weakened earnings, according to a Jan. 23 note from IIAC. Between 2011 and 2013, nine brokerages closed, while investment banking revenue declined 27 percent to C$2.9 billion last year from 2010, according to the organization.

The deal gives Edgecrest about 300 institutional accounts in Canada, U.S., U.K., Asia, and Europe.

Stonecap Chief Financial Officer and Chief Operating Officer Conrad Beyleveldt will be in the same roles at Edgecrest, replacing Keith Harris, 60, who’s retiring and will sit on the board, Beatty said. Charles Pennock, head of equity capital markets at Stonecap, will be managing partner of investment banking at Edgecrest. Jeffrey White, previously the CEO of Stonecap, will be managing partner of institutional sales.

Edgecrest this week announced it was underwriting a convertible debenture and warrants deal for North American Palladium Ltd., in a syndicate with Canaccord Genuity Group Inc., according to Beatty.

The Wall Street Journal reported the Stonecap deal earlier today.

(Adds information on Palladium deal in 11th paragraph.)
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