Derek Decloet and Kevin Orland, Bloomberg News
Two executives spearheading a leveraged buyout of Canaccord Genuity Group Inc. have a problem: They can’t get the deal past a board member who had previously been a close colleague at one of Canada’s biggest banks.
Canaccord insiders offered $11.25 a share to take the financial firm private in January, valuing it at more than $1.1 billion (US$810 million). Dozens of senior executives and managers, led by Chief Executive Officer Dan Daviau and Chairman David Kassie, support the plan.
Standing in their way is a four-person director committee led by veteran banker Gillian Denham. On Monday, her group said management’s offer isn’t rich enough and that it hired Barclays Plc to seek a better deal.
The parties know one another well. In the early 2000s, the trio was a core part of the leadership team at Canadian Imperial Bank of Commerce. Denham ran the lender’s retail division, while Kassie led the capital-markets unit and Daviau was co-head of investment banking.
Now they’re on opposite sides of a dispute over the future of Canada’s largest publicly traded independent investment dealer.
In an interview, Daviau said he understands Denham and other directors are doing their job by soliciting a higher bid. But it’s risky, as talk of a sale to an outside buyer — or a breakup — could destabilize Canaccord or scare off key employees, he said.
“If they engage in selling assets, we will likely pull our bid because that would be detrimental to our business,” Daviau, 58, said. “That would be foolhardy and very short-term focused on their part.”
Canaccord offers investment banking, trading, research and advice for companies and wealthy investors, primarily in Canada and the U.K. Such firms have become rare on the Toronto Stock Exchange, as Canada’s dominant banks have picked off independent players.
The company has had a bumpy ride since it was created out of a 2010 merger of Canaccord Financial and Genuity Capital Markets. The stock has mostly traded at a low multiple of earnings. It briefly topped $16 during the equity euphoria of 2021 before cratering last year. Canaccord was trading at $11.58 at 1:27 p.m. on Tuesday in Toronto, slightly above the proposed takeover price.
The idea of a breakup isn’t new. In 2020, Canaccord considered selling all or part of its business, Bloomberg reported at the time, and analysts speculated about a possible deal involving its U.K. wealth-management business.
Canaccord’s most valuable parts, by far, are its Canadian and U.K. wealth units, according to an assessment from Royal Bank of Canada commissioned by Denham’s group. RBC, in doing a “sum of the parts” calculation, said the company is worth 13 per cent to 40 per cent more than what the management group is offering.
Denham declined an interview request through an outside spokesperson.
'GREATER VALUE'
“The special committee believes there is greater value in the company than reflected in the offer price,” the board group said in a statement Monday, citing the RBC valuation.
The management bid is partly motivated by conversations with outside shareholders who are looking for an exit, Daviau said. So far, more than 50 employees have committed to rolling over most of their shares into a private Canaccord rather than cashing out, according to the management group’s takeover bid filing. An additional 150 have expressed interest in joining the bid group.
A higher offer is financially impossible, Daviau said, because the buyout group is already planning to borrow C$825 million and can’t get more. The loan is being led by New York-based HPS Investment Partners.
“Even if we wanted to increase our bid,” the CEO said, “we don’t have the financial capacity to do so.”