Sco­tia­bank buys in­vest­ment firm Jaris­lowsky Fraser in $950M deal

Move ex­pected to sig­nif­i­cantly boost wealth man­age­ment as­sets of lender

Ottawa Citizen - - FP - GE­OFF ZO­CHODNE

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),” 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

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

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.”

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