Bank of Nova Scotia’s buyout of Dundee Wealth Inc. is pricey, says UBS Securities Canada Inc., but it likes the bank’s strategy and the deal’s long-term growth possibilities.

In a research note, UBS explains that Scotiabank (TSX:BNS) is paying a high price for Dundee, but the deal is in line with the bank’s strategy, meets its return hurdles, and will have a modest impact to capital. “We view the acquisition positively, notwithstanding a relatively high price,” UBS says.

UBS notes that the acquisition of Dundee adds $76 billion of assets under management/assets under administration creating the fifth largest mutual fund company, with higher average growth. The deal also expands advisor distribution, products, and provides scale/synergies.

UBS says that the deal also allows Scotiabank to accelerate growth in emerging markets, “with positive implications for overall growth, returns, and long-term valuation.”

IE