Many blackmont Capital Inc. advisors are praising the acquisition of their beleaguered parent, Rockwater Capital Corp., by CI Income Fund, which continues to pile up distribution power.

“The vision of CI is consistent with the strategy Rockwater has been rolling out, with regard to becoming the leading non-bank-owned firm on the street,” says Nevin Chernick, who runs his own firm under the Blackmont umbrella in Vancouver. He moved over from BMO Nesbitt Burns Inc. a little more than a year ago.

“This is the best part-ner I can think of,” says Alan Tchabushnig, a Blackmont advisor based in Water-loo, Ont. Many advisors also own Rockwater shares.

CI’s deal is to acquire Rockwater for about $251 million in shares and cash, including the assumption of $20 million in debt. The transaction is expected to close at the end of March. “We are in the business of managing retail assets,” says Bill Holland, CEO of operating arm CI FInancial.

Holland describes the purchase as “the latest in a series” of distribution deals that have set the firm up to compete with the banks.

In 2003, CI bought Assante Wealth Management Ltd., which itself was fresh off of the acquisition of IQON Financial Inc. Recently, CI tied up a captive distribution arrangement with Sun Life Financial Inc.

However, an investment dealer is a completely fresh angle on the strategy. “A huge chunk of the assets is being managed by stock brokers across the country, and that’s a big part of the management business,” Holland says. “And it gives us more fee business.”

Various analysts describe CI as an unnatural buyer, simply because it has no brokerage business to begin with. Yet, in the end, that was what made the deal work, from the advisors’ perspective.

A Rockwater merger with Dundee Wealth Management Inc., Ray-mond James Ltd. or another large independent, while better than a bank, would have involved costly technology and back-office merger problems, not to mention possible redundancies.

“For the brokers, it’s business as usual, with a well-financed, successful partner,” says Holland. “We’re using their technology. And they can look at it this way: instead of having 400 shareholders, they have one.”

Holland says Knight Bain Seath & Holbrook Capital Management Inc. , Rockwater’s institutional money-management firm, may be “hived off” to interested managers. But CI will maintain Blackmont’s capital-markets team to support its retail brokerage.The Rockwater name will disappear, he adds.

Gerry Throop and Bruce Kagan, executive vice presidents of the former Rockwater, are free to execute on the business plan they presented to CI: to grow organically and profitably through 2008. “They certainly should be able to create a profitable business with 180 financial advisors,” says Holland.

In the eyes of the market, CI is now a potential suitor for other investment dealers. Upon news of the deal, Vancouver-based Cannacord Capital Inc. ’s share price jumped. Canaccord is a much bigger fish than Rockwater, with about 400 brokers and a much stronger capital-markets presence.

Winnipeg-based Wellington West Capital Inc. , a privately owned firm, would be easier to swallow, but it is performing well, is well regarded and would cost a lot.

Profitable brokers are expensive to acquire, as former Rockwater president Bill Packham and former chairman Robert Schultz would attest. The cost of building their retail force of brokers is one of several factors that pushed their latest project to the brink.

Little more than a year ago, Packham was confidently informing the market that Rockwater would gather $20 billion in assets by 2008, partly by acquiring advisors with books of $50 million or more. He would build a top-notch full-service model firm, with a capital-markets arm and a money-management arm. Then he would make the firm’s invested capital “sweat,” as he put it.

In describing his goals, Packham leaned on the model of Midland Walwyn Capital Inc., the successful independent brokerage he helped build in the 1980s. Packham led the management team that sold Midland, when equity markets were beginning to bulge in 1998, to Merrill Lynch & Co. Inc. , which in turn pledged to keep the independent character of the firm.

A short time later, as the industry flagged, Merrill sold the former Midland retail business to CIBC (which later merged it with CIBC Wood Gundy), leaving many of those independent-minded advisors suddenly working for a bank. To date, history has partly repeated itself.

@page_break@What went wrong? Analysts familiar with Rockwater say the executives paid too much for the assets they acquired, particularly the $80-million purchase price for KBSH, which included $5 million from senior managers at the financial services firm, among them Packham and Schultz. Previously, they had bought Yorkton Securities Inc.’s retail brokerage team and First Associates Investment Inc.’s capital-markets team.

KBSH had been losing mandates to competitors when Rockwater acquired it. It has lost more since then. KBSH’s assets under management have fallen to $3.4 billion from $10 billion two years before, and most of First Associates’ top analysts had left.

Early last year, Rockwater’s revenue was growing, but that was at the height of Canada’s commodity boom. When the oil and gas deals stopped flowing and the market for unit trust deals ended on Oct. 31, the firm’s investment-banking arm started to dry up; Rockwater began to swoon under its debt.

Cash flow tightened even further in the late autumn, when several managers at the firm’s mutual fund arm demanded a bigger portion of the shrinking income. They formed Barometer Capital Management Inc. , took about $560 million in AUM from the parent and began taking management fees that otherwise would have helped Rockwater’s profitability. IE