Scotiabank buys Jarislowsky Fraser

Move expected to significantly boost wealth management assets of lender

Bank of Nova Scotia has made good on recent hints of interest in additional institutional and wealth management assets by announcing a deal on Monday to buy independent investment firm Jarislowsky Fraser for about $950 million.

Scotiabank, Canada’s third-largest lender, said it would “primarily ” pay for its purchase of Montrealbased Jarislowsky Fraser by issuing shares. The deal is expected to close by the third quarter of 2018, pending regulatory approvals.

The addition of Jarislowsky Fraser, which has more than $40 billion in assets under management via pension funds, corporations and high-net-worth clients, among others, would create Canada’s third-largest active asset manager, with around $166 billion in assets under management.

“This transaction aligns with our strategic commitment to diversify our global wealth management business by building out a platform of rigorous, process-driven investment capabilities for institutional investors across our footprint in Canada and the Pacific Alliance,” Brian Porter, president and chief executive officer at Scotiabank, said in a release. “The acquisition also enhances Scotiabank’s ability to serve the banking, estate, and trust needs of high net worth families who are the clients of Jarislowsky Fraser.”

Scotiabank suggested it could pull off such a move at an investor day this month. James O’Sullivan, group head of Canadian banking, said at the time that the bank wanted wealth management to grow to 15 per cent or more of total earnings, up from its current level of 12 per cent. O’Sullivan also said the current makeup of the lender’s wealth business was primarily focused on Canada and on retail clients.

“As a result, we have a keen interest in acquisitions,” he told the audience. “Particularly ones that diversify our retail and institutional mix, and add scale internationally.”

Scott Chan, analyst at Canaccord Genuity, said the acquisition “is consistent with (Scotiabank’s) strategy to grow global wealth management.”

“We believe there are a number of cross-selling capabilities (Jarislowsky has a diversified product platform) at Institutional in Canada and the Pacific Alliance, as well as servicing Jarislowsky’s current (high net worth) clientele (i.e. banking, estate, trust needs),”

Scotiabank is uniquely positioned to preserve the legacy of our firm and enable the next generation of growth.

he added.

Scotiabank said the transaction has the backing of all of the partners at Jarislowsky Fraser. The management team there will keep running the existing business, and the firm’s founder, 92-year-old Stephen A. Jarislowsky, will continue his “association” with the asset manager, which will keep his name and its investment independence. The head office of the firm will stay in Montreal, Scotiabank said.

What’s more, “substantially” all of the partners have agreed to use half of their proceeds from the deal on Jarislowsky Fraser’s investment strategies, according to a release.

“With its existing distribution footprint, Scotiabank is uniquely positioned to preserve the legacy of our firm and enable the next generation of growth,” Jarislowsky said.

Robert Sedran, analyst at CIBC Capital Markets, wrote that Jarislowsky Fraser’s assets were roughly 70 per cent institutional and 30 per cent private wealth, “which improves (Scotiabank’s) relative positioning and diversification in Canada.”

“There are likely few expense synergies of consequence (that would be the execution and retention at work … we would assume little integration, particularly in the front office) and so the benefit will need to flow from growth — in assets and earnings,” Sedran said.

Scotiabank says it will make up for the “dilutive impact” its issuing of shares will have by buying back a “similar amount” of stock in the 12 to 18 months following the close of the deal. After the buybacks are done, Scotiabank said, it expects the Jarislowsky Fraser acquisition to give a lift to earnings in its 2020 fiscal year.

A note from Moody’s Investors Service said that the deal “will increase BNS’ wealth management earnings, an area in which it has lagged the other big five Canadian banks.”