Fiera Capital to merge with Sceptre Investment Counsel in $84 million deal

Date: Thursday, June 17, 2010
Author: Investment Executive

Sceptre Investment Counsel Ltd (TSX:SZ) and Fiera Capital Inc. have signed a definitive agreement to merge the two companies into a bigger money manager with $30 billion in assets under management.

The new investment firm will be named Fiera Sceptre and will have greater growth opportunities through cross-selling and economies of scale, principals of the two companies told a conference call with analysts Wednesday.

“The shareholders in the merged company stand to benefit from a larger... more dynamic organization,” said Jean-Guy Desjardins, controlling shareholder of Montreal-based Fiera Capital.

“It will leverage two established recognized brands in our respective markets and provide best-in-class performance in annualized returns across multiple products, notably Canadian equities and fixed income as well as alternative strategies,” added Desjardins, who becomes chairman, CEO and chief investment officer of the combined company as well as its controlling shareholder.

The announcement sent Sceptre shares soaring $1.41, or more than 27% to $6.61 in midday trading on the Toronto Stock Exchange.

Fiera president and chief operating officer Sylvain Brosseau will become president and chief operating officer of the combined, publicly traded firm, while David Pennycook, currently president and interim CEO of Sceptre, will become vice-chairman and executive vice-president.

Under the agreement, shareholders of Toronto-based Sceptre will exchange 14 million common shares for 14 million new Class A subordinate voting shares of Fiera Sceptre on a one-for-one basis.

Montreal-based Fiera will exchange the entirety of its operating assets and related liabilities for 21.1 million Class B common shares of Fiera Sceptre, which will result in a total of 35.1 million Class A subordinate voting shares and Class B shares, with Fiera controlling approximately 60% of the outstanding shares of Fiera Sceptre.

After the deal closes, a special payment of 60 cents a share or $8.4 million will be paid as a capital distribution to Sceptre shareholders. Meanwhile, Fiera Sceptre intends to maintain a dividend of six cents a share per quarter, which Sceptre currently pays.

In another development, Fiera minority shareholder Jean Monty, a former BCE chief executive, will acquire 833,333 Class A shares of Fiera Sceptre at $6 per share for a total investment of $5 million.

The deal “creates a significantly larger player in the investment management arena with $30 billion of assets under management,” Sceptre chairman Ross Walker told analysts.

“Jean-Guy Desjardins’ superb track record in building investment management businesses, including as founder and builder of TAL Global Asset Management, and as chief investment officer at Fiera, was a key element in our decision to partner with him. Jean-Guy’s team has a proven record of growing investment management businesses and shareholder value through organic growth and acquisitions.”

Pressed by analysts during the call to detail the synergies expected from the merger, Desjardins said many of the details would be made in the offering memorandum expected to be available within the next four weeks.

Walker described the asset management business as “very much based on the economies of scale.”

“Moving, in Sceptre’s case, from $7 billion in assets to $30 billion in assets, requires increased staff but not a proportionate increase in staff. So one of the big levers is going to be managing larger assets (which) will produce a better bottom line and will be accretive,” he said.

Desjardins said he expects the merger to generate “quite a bit of momentum” on both the high net worth and retail client side.

“On the institutional side, we think that there is a significant cross-selling potential,” he said, adding that there is very little overlap between Sceptre and Fiera institutional client bases.

Desjardins said the institutional market tends to wait three to six months to see how “the marriage is evolving” in such mergers.

“If it evolves as successfully as we are convinced it will at this stage because of the great chemistry that exists between the Sceptre senior officers and Fiera senior officers ... I think relatively soon the institutional market will look upon this as a transaction that offers tremendous potential,” he said.