GMP Capital Trust today announced that it is buying EdgeStone Capital Partners LP, a private investment firm and fund manager.
GMP said it will pay $62 million in cash and 4.02 million partnership units of its subsidiary Griffiths McBurney LP to buy EdgeStone. The partnership units are exchangeable into units of GMP on a one-for-one basis.
“This transaction will improve our deal sourcing capabilities by providing us with access to GMP’s extensive network of leading Canadian entrepreneurs,” said Samuel Duboc, the president and managing partner of EdgeStone, in a news release.
The two companies have agreed that GMP will not be involved in EdgeStone’s investments and that EdgeStone will continue to manage its own day-to-day operations.
“EdgeStone represents a premium franchise in the Canadian private equity space and its people, culture and track record of performance represent an exceptional fit with GMP. We are excited by the opportunity this transaction represents as we continue to seek new ways to leverage the knowledge within our franchise to the benefit of our rapidly growing client base,” said Kevin Sullivan, CEO of GMP.
The transaction is scheduled to close in July.
GMP will leave the management of EdgeStone, to run the business without disruption, said GMP chief executive Kevin Sullivan.
In a conference call with analysts to explain its proposed acquisition of EdgeStone Sullivan indicated that it has no intention of meddling in the operations of EdgeStone. Sullivan said that the existing management have an impressive track record in the private equity area, and that’s what it’s buying in this deal.
Along with their track record, Sullivan said the firms have complementary cultures, that make the deal a strategic fit. And, he suggested that there will be productive synergies between the EdgeStone business and GMP’s existing clients. He notes that it expects the deal to further its “dominant” position in the mid-market.
While GMP doesn’t issue earnings guidance, Sullivan suggested that the transaction is expected to be about 5% accretive to earnings; and this doesn’t make any heroic assumptions about future growth. No regulatory approvals are required for the deal, and there is no break fee attached, he noted.
Sullivan allowed that the $62 million in cash being paid in the deal seems like a rich price, but he noted that much of it is being plowed back into the business. Of that total, about $18 million is being used to buyout minority partners in the funds, another $12 million or so is being invested in EdgeStone’s Capital Equity Fund III, and the rest is going to retain EdgeStone personnel and to cover tax and other liabilities. Also, GMP is investing $5 million in the firm’s Equity Fund III as a limited partner.
EdgeStone has offices in Toronto and Montreal, and has managed over $2 billion of private capital on behalf of institutional and high net worth clients.
GMP’s subsidiaries include GMP Securities LP, Griffiths McBurney Corp. and GMP Private Client LP.