A deal for AIM Funds Management Inc. would be very attractive for CI Fund Management Inc, says BMO Nesbitt Burns in research report Thursday. A deal for its UK-based parent company, Amvescap plc, would be more complicated and riskier, but may make sense, too.

On Wednesday, Amvescap said that CI has approached it about a possible deal for its Canadian subsidiary, which it rebuffed. It also said that CI might consider a bid for Amvescap instead, although it expressed skepticism about whether CI could finance such a deal.

BMO Nesbitt’s report says that although specific prices were not disclosed, “we do not believe CI would face significant hurdles in financing the transactions, particularly with Sun Life as a 35% partner.” Sun Life Financial Inc. has a 35% ownership stake in CI.

“Admittedly, acquiring all of Amvescap, which has a market capitalization of US$5.8 billion, would present some unique hurdles given CI’s market capitalization of C$5.3 billion,” it says. But it adds that CI could comfortably afford the acquisition of AIM Funds Management Inc., and says that such a deal would be “very attractive” for CI from “a strategic and financial perspective”.

It notes that such a deal would be add sales momentum and scale. Combined, CI and AIM Trimark would be the largest mutual fund company in Canada with $90 billion in Canadian mutual fund assets. BMO Nesbitt adds that both companies have been had net sales for the last 12 months; AIM’s investment style has a loyal following within the independent and retail broker channels; further, the company represents less than 10% of Amvescap’s assets under management but more than 38% of operating profits.

The firm says that a bid for all of Amvescap would be a much larger transaction carrying greater risk. “In this scenario, CI would most certainly seek a partner for the non-Canadian, or at least the non-North American, businesses. The logical partner would be Sun Life as there may be a natural fit with MFS,” it says, adding it believes a joint CI/Sun Life acquisition of Amvescap makes strategic sense.

“The risks in this deal would be more complex. We believe the Canadian operations are reasonably well run and that AIM Funds would be an excellent acquisition largely because of its reputation and brand name,” it says. But “the U.S. operations are in a more challenging position. Invesco recently settled with the SEC for US$450 million and net outflows remain elevated in all businesses. This creates a challenging operating environment, particularly for an acquirer. We believe a number of interested parties may ultimately be unwilling to accept this task.

“While CI would like to acquire AIM, other bidders could emerge, specifically IGM Financial,” it adds. “In addition, other larger global operators could consider a bid for Amvescap in its entirety. These global managers might include UBS, AXA, Franklin Resources, BNP Paribas, among others. Franklin Resources is an interesting potential bidder because it has a large mutual fund company in Canada as well as a significant presence in the U.S. market.”

The firm also points out that under UK market rules, in the event of an unsolicited bid, the target company may be required to put the bid to a shareholder vote regardless of the board’s opinion. And if a target company opens a data room to attract alternative suitors, the unsolicited bidder also has access to the data room.