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AGF bolsters fund offerings with purchase of Acuity

INVESTMENT FUNDS REPORTER

AGF Management Ltd. has struck a $325-million deal to buy Acuity Investment Management Inc., the latest in a flurry of takeovers in the Canadian fund industry.

The AGF deal follows on the heels of recent moves by Bank of Nova Scotia to acquire DundeeWealth Inc. and CI Financial Corp. to buy Hartford Investments.

The Acuity transaction will boost AGF's mutual fund and institutional assets under management by $7.4-billion or 16 per cent to $51-billion.

AGF, which has struggled from net redemptions for 32 consecutive months in its mutual funds, will remain the 9th-largest Canadian fund company as its retail assets grow to over $25-billion. Privately held Acuity has also been suffering from net outflows in its mutual funds since April.

The deal doesn't fix AGF's problems in terms of net redemptions, but is "positive because it needs scale to be more competitive," CIBC World Markets analyst Paul Holden said Tuesday. "You would have liked them to buy something that had positive net sales, but that is becoming more and more difficult," said Mr. Holden, who has a "buy" on AGF with a one-year target of $19 a share.

Under the terms of the transaction, Acuity shareholders will receive 60 per cent cash and 40 per cent in AGF class B non-voting shares. The deal is expected to close by Feb. 1 following regulatory approval. AGF, which is financing the purchase with $200-million in bank loans, expects the deal to increase earnings per share starting next year.

Acuity founder and chief executive officer Ian Ihnatowcycz, who will join AGF's board of directors, told analysts that the growth of his firm has plateaued because industry consolidation and competition from the banks make it "more difficult for mid-sized firms to compete."

AGF CEO Blake Goldring said the Acuity acquisition means that his firm, which has 63 per cent of its mutual fund assets focused on equities, will now have additional offerings in balanced and bond funds, both of which have been hot sectors. In addition, "Acuity's specialization in socially responsible investment products will allow us to appeal to a broader range of investors," he added.

AGF Management (AGF.B)

Close: $17.22, down 4¢

© 2007 The Globe and Mail. All rights reserved.

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