Canada’s largest independent asset manager is selling itself to an arm of a Middle Eastern sovereign wealth fund for $4.7-billion, exposing the gulf between private equity buyers happy to chase growth at all costs and public investors who are more cautious about debt.
CI Financial Corp. CIX-T is being privatized by Abu Dhabi-based Mubadala Capital, the alternative asset arm of Mubadala Investment Company, for $32 a share – a 33-per-cent premium to Friday’s closing price of $24.01. That’s on top of a major run up in CI’s share price, which had climbed 61 per cent in 2024 before the deal was announced on Monday.
A spokesperson for Mubadala declined an interview, and CI did not respond to The Globe and Mail’s request for comment.
While the takeover delivers a significant short-term return, the offer price is below CI’s record high of $36.79 set a decade ago. The S&P/TSX Composite Index is also up roughly 75 per cent over the same time period.
But it is a win for CI board chair Bill Holland, who personally bought millions of dollars worth of CI shares in the past five years, believing the company was significantly undervalued. And it is a vindication of the audacious strategy put in place by CI’s current chief executive officer, Kurt MacAlpine, who bet that a U.S. expansion would pay off – even if it saddled CI with billions of dollars worth of debt.
The buyout caps off a turbulent run for CI’s shares over the past decade. After hitting a record high in May, 2014, the stock tumbled for years as Canadians increasingly cashed out of high-cost mutual funds and moved their money to lower-cost exchange-traded funds. Amid this shift, CI struggled to articulate a strategy, and investors came to realize that a Canadian bank was unlikely to acquire the company.
For years, the expectation was that CI would be acquired by Bank of Nova Scotia BNS-T, as it owned 38 per cent of the company. Yet Scotiabank decided to buy DundeeWealth instead and then sold its CI stake near the record share price in 2014.
With CI’s share price tumbling for multiple years, CI hired Mr. MacAlpine, a former McKinsey consultant and executive at ETF provider WisdomTree Asset Management, in 2019. He vowed to implement a new strategy that would see CI expand aggressively in the United States, and his plan involved buying up registered investment adviser companies, known as RIAs, and renaming the U.S. wealth management business to Corient Holdings.
Ultimately, the goal was to ramp up CI’s distribution capabilities in the U.S., as low-cost fund management was becoming a commodity, and to divide CI into two businesses. Mr. MacAlpine wanted to take the U.S. division public through a U.S. stock offering and then privatize the Canadian operations through share buybacks.
However, these plans were derailed because the U.S. stock market tumbled throughout 2022.
With an IPO on hold, shareholders, analysts and debt-ratings agencies expressed concerns about the amount of debt CI took on to fund its U.S acquisition strategy. From the end of 2019 to the end of 2022, CI’s net debt – its obligations, offset by its cash on hand – rose to $4.2-billion from $1.4-billion, according to S&P Global Market Intelligence.
To begin paying down its debt, CI sold a 20-per-cent stake in its U.S. wealth management business in 2023 to a group of institutional investors for $1.34-billion and told investors it was pausing plans to go public. The investors included Bain Capital, Flexpoint Ford, Ares Management, the State of Wisconsin and a wholly owned subsidiary of the Abu Dhabi Investment Authority.
Initially, shareholders liked the financing because it seemed to value CI’s U.S. business at $6.7-billion and the shares jumped 50 per cent. However, investors quickly realized that the financing’s preferred shares had intricate terms stipulating that, if CI did not take its U.S. arm public by 2026, their value would rise sharply – to the detriment of CI’s common shareholders.
This timeline, coupled with the debt load, put CI’s management team in the hot seat because the market for initial public offerings remains muted, even though U.S. equity markets are scorching hot again. Yet lately, private equity buyers – and in particular, buyers from the Middle East – have expressed significant interest in wealth managers who buy up smaller RIA firms, often paying premium valuations for these “RIA consolidators.”
In September, Creative Planning – an RIA consolidator based in Overland Park, Kan., with US$375-billion in assets under management – sold a minority stake in its wealth management business to private equity giant TPG Capital. While details of the transaction were not disclosed, CityWire, an industry publication, reported it was about a US$2-billion stake that valued Creative Planning at more than US$15-billion, or 23 times its earnings before interest, taxes, depreciation and amortization (EBITDA) – though these figures can be inflated by unknown performance targets that must be met to get the full valuation.
CI has opted to cash in on this wave, providing “certainty to shareholders while CI pursues its ongoing transformation,” lead board director Bill Butt said in a statement.
While CI’s shareholders get a clean exit, the multiple that Mubadala is paying relative to CI’s earnings comes in under recently reported U.S. transactions. In a note to clients, Raymond James analyst Stephen Boland calculated that CI is getting acquired for 10.8 times its expected EBITDA in 2025, which “is low for one of the largest independent asset managers in Canada and a fast-growing U.S. business.”
Mr. Boland added that the sale “should satisfy shareholders and insiders that may have some fatigue,” and noted the timing avoids a future U.S. IPO and a more complicated structure. Under the terms of the buyout, Mubadala will fund up to $750-million of additional cash to buy out existing preferred shareholders.
If the buyout – which is still subject to regulatory approval – is passed by shareholders in January, Mr. MacAlpine expects to roll all his equity over while Mr. Holland, the board chair, who has been a major buyer of CI shares in recent years, may roll 25 per cent of his total CI holdings.
He is currently the company’s largest shareholder, owning 8.2 per cent of CI. At $32 apiece, Mr. Holland’s 11.9 million shares are worth just under $382-million.
Mr. MacAlpine holds just over 500,000 shares of CI stock, largely from past compensation awards. He has another 755,553 shares of restricted stock, also from compensation, that have not yet vested. At $32 a share, his combined holdings are worth $40.2-million.
With reports from David Milstead
Editor’s note: A previous version of this story incorrectly attributed a quote to CI board chair Bill Holland. It was CI director Bill Butt who said the deal will provide certainty to shareholders. This version has been corrected.