PrefBlog

GMP Capital will soon experience great change:

GMP Capital Inc. has announced plans to exit the capital markets business, selling its investment banking arm to U.S. brokerage house Stifel Financial Corp. for approximately $70-million in a dramatic shift for what was once one of Canada’s most successful independent investment dealers.

In the latest sign of consolidation in financial services, GMP Capital’s bankers and traders will join St. Louis-based Stifel, which has built a national U.S. platform by making more than two dozen acquisitions during chief executive officer Ronald Kruszewski’s 22 years at the helm.

GMP Capital, founded in 1995 by veteran deal makers, made its name raising money for entrepreneurial businesses such as Research in Motion – now BlackBerry Ltd. – and cannabis, mining, and oil and gas companies in recent years. But, like BlackBerry, the Toronto-based investment bank that once boasted a market value of $2-billion is undergoing a transformation. Its core business will now revolve around its 33-per-cent stake in wealth manager Richardson GMP, which has approximately $30-billion in assets and 170 teams of financial advisers.

Once the Stifel transaction closes, GMP Capital plans to buy the remaining 67 per cent of Richardson GMP from its employees and Winnipeg’s Richardson family in a stock swap that will make the Richardson clan the company’s largest shareholder. GMP Capital will hold approximately $198-million in cash. That capital is earmarked for expanding the wealth management platform by recruiting financial advisers and potentially adding new services such as robo-advisers, specialized lending and asset management.

… and DBRS is watching with great interest:

DBRS, Inc. (DBRS) placed GMP Capital Inc.’s (GMP or the Company) Cumulative Preferred Shares rating of Pfd-4 (high) Under Review with Developing Implications. The rating action follows the announcement that GMP has agreed to sell substantially all of its capital markets business to Stifel Financial Corp. (Stifel).

KEY RATING CONSIDERATIONS
The Under Review with Developing Implications status reflects uncertainty surrounding the transaction, including shareholder and regulatory approval that are still required for the transaction to close as well as other strategic initiatives that are occurring in tandem. While certain assets and liabilities will transfer to Stifel with the capital markets business divestiture, the Cumulative Preferred Shares rated by DBRS will remain with GMP.
…
DBRS will assess GMP’s pro-forma structure at the close of the transaction, including the remaining assets and liabilities as well as the Company’s future strategic direction and management’s ability to execute on this plan. DBRS notes that Harris Fricker, Chief Executive Officer of GMP, and other key personnel have agreed to join Stifel.

The rating could be upgraded if GMP’s pro-forma financials post-transaction are deemed to be stronger as a result of shedding the capital markets business, which has been highly volatile and loss-making. The rating could be downgraded if GMP’s credit fundamentals post-transaction are deemed to be weaker or if GMP is not able to acquire majority control of Richardson GMP, limiting its wealth management growth strategy.

Affected issues are GMP.PR.B and GMP.PR.C

This entry was posted on Tuesday, June 18th, 2019 at 6:10 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.