The consolidation trend reshaping Canada's mutual fund landscape continued yesterday when industry leader Investors Group Inc. agreed to pay up to $106-million for a controlling stake in IPC Financial Network Inc.
Mississauga-based IPC, the fifth-largest financial planning firm in Canada, has more than 600 advisers and $7.1-billion of assets under administration, including about $1.2-billion in its Counsel Wealth Management mutual fund division.
"Counsel is a minor portion of the deal. The main thing is those 600 financial advisers," said Rudy Luukko, investment funds editor with Morningstar.ca.
The recent bear market led to a shakeup in Canada's $451.6-billion fund industry, with firms that rely on advisers to sell their funds hit especially hard, Mr. Luukko said.
In a conference call with analysts, Investors Group president and chief executive officer Jeffrey Orr said the deal will beef up its already sizable sales force and generate about $5-million in cost savings by combining back office services, information technology and other functions.
But IPC's current management will remain in place and the company will operate as a separate entity, as does much larger Mackenzie Financial, which Investors Group acquired in 2001.
Investors Group shares rose 45 cents to close at $33.25 on the Toronto Stock Exchange. IPC, which trades on the TSX Venture Exchange, gained 33 cents or 20.6 per cent to $1.93.
It is the latest instance of a fund company buying a financial planning firm. Last summer, CI Fund Management bought the Canadian financial planning and investment operations of Assante Corp.
Winnipeg-based Investors Group, Canada's biggest mutual fund firm, is offering $1.95 each for all of IPC's outstanding shares. IPC shareholders have the option of receiving the full amount in cash, or 97.5 cents in cash plus about 0.03 shares of Investors Group.
Shareholders controlling 54 per cent of IPC -- including chief executive officer Steve Meehan, president Chris Reynolds and ING Canada -- have agreed "irrevocably" to support the deal, the companies said. According to the IPC management information circular dated Jan. 23, 2004, ING held 21.2 per cent of IPC's outstanding shares, Mr. Reynolds owned 10.7 per cent and Mr. Meehan 10 per cent.
IPC put itself back in play last September, saying it rejected an unsolicited offer from an unidentified suitor. A deal by Toronto-based Dundee Wealth Management Inc., owner of Dynamic Mutual Funds Ltd., fell apart last May after due diligence by Dundee turned up concerns about IPC's Montreal office.
Under the complicated deal announced yesterday, Mr. Meehan and Mr. Reynolds will each exchange 72.5 per cent of the IPC shares they own or control for new shares of IPC Holdco, a private company that will own IPC's business following the transaction. Upon closing, expected in May, Investors Group will own 70 to 85 per cent of IPC Holdco, Mr. Meehan and Mr. Reynolds will each own 7.8 per cent and IPC's financial planners and other management will own up to 14.5 per cent. ING will not own a stake in the new holding company, an IPC spokesman said.
In addition to its equity investment, Investors Group plans to provide additional financing by purchasing a $48.75-million convertible debenture of IPC Holdco. IPC has agreed to pay Investors Group a break fee of $5-million "in certain circumstances" if the deal doesn't proceed. The transaction is subject to approval of IPC shareholders, among other conditions.
© 2007 The Globe and Mail. All rights reserved.
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