March 4, 2010 / 2:49 PM / in 8 years

UPDATE 2-Canaccord to acquire Genuity, expand advisory arm

* Combined company to be named Canaccord Genuity

* Cash-and-stock deal worth about C$286 mln

* Canaccord shares up 8.1 percent (Adds TORONTO to dateline, details on deal, share movement, byline)

By Euan Rocha

TORONTO, March 4 (Reuters) - Canadian brokerage firm Canaccord Financial (CF.TO) said it was buying rival Genuity Capital Markets for about C$286 million ($277 million) in cash and stock to expand its merger advisory business.

Canaccord, one of Canada’s largest independent brokerage firms, has built a strong presence in the nation’s mining space, particular among juniors and midcaps. It also has more than 30 offices worldwide and has also developed a strong presence in China.

But its influence in the highly territorial world of mergers and acquisitions does not stretch far beyond those specialties.

Privately held Genuity lacks Canaccord’s distribution networks, but its team of bankers has ties in high places at major Canadian companies like Air Canada ACa.TO ACb.TO, the country’s largest airline.

Genuity advised on at least 13 large merger deals in 2009, including Viterra Inc’s VT.TO A$1.6 billion acquisition of Australia’s ABB Grain in September.

“In our view it is reasonable to assume that the combined firm should benefit from their respective strengths in underwriting and M&A,” Macquarie analyst Sumit Malhotra said in a note to clients.

Canaccord shares were up 8.1 percent at C$9.30 in early trading on the Toronto Stock Exchange.

The deal is the latest in a wave of consolidation in the Canadian financial services sector over the last year.

In July, GMP Capital (GMP.TO) tripled its private client operations in a merger with Richardson Partners Financial Ltd [ID:nN24240881].

That deal combined Richardson’s strong retail platform with GMP’s already strong investment banking operations, much in the same way Genuity’s investment banking arm complements Canaccord’s distribution.

In October, Australian investment bank Macquarie Group (MQG.AX) said it would buy Canada’s Blackmont Capital for C$93.3 million, bulking up its retail distribution and ending a two-year Canadian shopping spree. [ID:nN26119860]


Canaccord plans to pay 26.5 million shares and C$30 million cash for Genuity, which will also receive up to $28 million as a working capital adjustment when the deal closes.

The proposed deal will result in Canaccord raising the number of its shares outstanding by about 48 percent from about 55 million currently. Hence, the agreement requires approval of the Toronto Stock Exchange and Canaccord shareholders.

Based on the C$8.60 closing price of Canaccord’s shares on Wednesday, this deal values Genuity at about $285.9 million.

“The Genuity partners are an excellent strategic and cultural fit with our business, and this transaction is immediately accretive to shareholders,” Canaccord Chief Executive Officer Paul Reynolds said in a statement.

The combined capital markets operations in Canada, the United States and the United Kingdom will be renamed Canaccord Genuity on closing.

Reynolds will remain as president and CEO of the combined company.

Jens Mayer of Canaccord and Ted Hirst of Genuity will be global heads of investment banking, while Daniel Daviau of Genuity will be head of Canadian investment banking.

Canaccord said it would appoint two Genuity partners — David Kassie and Philip Evershed — to its board.

Canaccord said it would hold a special meeting, probably in late April, for shareholders to consider the transaction. ($1 = 1.033 Canadian dollars) (Additional reporting by Pawel Jordan in Toronto and Amulya Nagaraj in Bangalore; Editing by Lisa Von Ahn)

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