The word around wa-ter coolers on Bay Street is that a deal to sell Berkshire Group for a price exceeding $100 million is now down to the short strokes.

The potential sale, which has been rumoured for about two years, could be finalized as early as this month, say sources close to the situation.

Negotiations heated up during March and April for the Burlington, Ont.-based firm, which has 800 advisors across the country and $12 billion in assets under administration.

The number of potential suitors for Berkshire has reportedly been whittled down from five or six, and it’s expected to finish as a two-horse race. Companies rumoured to have made a pitch for Berkshire include Power Corp., Dundee Wealth Management Inc., CI Financial Inc. and Raymond James Ltd.

“[Berkshire is] the biggest independent distribution network out there right now. It has Mutual Fund Dealers Association of Canada and Investment Dealers Association of Canada platforms; it’s the last big one out there,” says one player in Toronto who is close to the negotiations. “Once this is gone, you can’t buy that size of company anymore. That’s why it’s appealing to the big firms.”

Berkshire was launched by Michael Lee-Chin, the Jamaica-born billionaire, in 1986. He is the chairman and largest shareholder of the independent distributor of mutual funds, stocks, bonds, RRSPs, RRIFs, margin accounts and specialty products. Berkshire is also a sister company to AIC Ltd. , a mutual fund manufacturer chaired by Lee-Chin, who is also majority owner.

One Bay Street executive says he would be surprised if a successful bidder wasn’t announced within weeks. He says Berkshire’s assets make it an attractive target for any company looking to add scale.

“On the flip side, there’s no way to know whether you’d be able to keep it. These things are so hard to buy. Advisors can just leave if they want,” he says. “It’s an asset play. If you’re trying to bulk up, this is a way to do it in one fell swoop.”

An analyst in Toronto says a potential group of buyers that isn’t attracting much attention in the Berkshire sweepstakes is insurance companies, which already have a foothold in the channel but don’t have sufficient scale. He says Manulife Financial Corp. is one obvious example; Quebec-based Industrial Alliance and the Desjardins Group, through its Desjardins Sécurité Financier subsidiary, formerly Laurentian Financial, are two others.

“A key strategic priority for the larger Quebec financial players is to get a presence in English Canada,” he says. “Manulife has a presence in the MFDA platform, but it doesn’t have the scale it needs or wants and it doesn’t have an IDA platform.

“The firms for which it makes the most financial sense are those that already have significant scale, and such an acquisition becomes a bolt-on,” the analyst continues. “They’d be able to cut most of the overhead and they’d just be adding incremental capacity onto their existing engine.”

Glenn Pittman, Berkshire’s senior vice president of business development, says a sale of the company isn’t a fait accompli.

“Maybe there’s somebody that we’ll buy,” he says. “Michael Lee-Chin started this business and he will remain a significant shareholder, whatever form it takes in the future. We know it’s a consolidating industry and it will continue to be so, going forward. Scale is important in the business. Obviously, you want to make sure any of the firms are competitive in the long term.”

Regardless of what transpires, Pittman says, Berkshire won’t do anything that will hurt its business or the position of its advisors over the long term. “That’s sacrosanct to our business,” he says.

A pair of Bay Street executives say their firms aren’t in the Berkshire race. Bill Holland, CI’s CEO, says his company has enough on its plate at the moment and isn’t pursuing acquisitions for the time being.

“The only thing we’re focusing on is making sure that the Blackmont Capital Inc. deal works out well,” he says, referring to his firm’s February acquisition.

Ned Goodman, president and CEO of Dundee, says his company was negotiating for Berkshire at several points in the past but isn’t anymore.

“We’re doing nothing,” he says. “[Acquiring Berkshire] isn’t something we want to do. We don’t need it. We’re bigger than they are and we don’t need to get bigger.”

@page_break@Whatever company ends up buying Berkshire will acquire a firm that comes with some baggage. First, there is the case of Ian Thow, an advisor who worked for Berkshire Investments in Victoria. His clients lost more than $30 million and he was charged by the B.C. Securities Commission, but not before he fled south of the border.

Berkshire was also the subject of a class-action lawsuit alleging investors were given poor advice in regard to Portus Alternative Asset Management Inc., a Toronto-based hedge fund manager that went into receivership two years ago.

The rumours swirling around Berkshire come at a time when AIC is continuing an unprecedented streak of monthly net redemptions. In the past five years or so, its assets under management plummeted from a high of $15.5 billion to less than $8.5 billion.

Lee-Chin’s active role in both firms has been decreasing as he concentrates on investments in the country of his birth, principally National Commercial Bank of Jamaica, which he bought several years ago.

The analyst in Toronto says Berkshire and its predecessor, AIC Investment Council, were seen as instrumental to the growth of AIC funds. In the mutual fund company’s early days, a large percentage of its assets went through Berkshire.

“The [Berkshire] advisors had bought the [AIC] story. When AIC ran into difficulty, from a performance perspective, those advisors had the largest percentage of their books in AIC. But they also represented a significant percentage of the redemptions,” he says.

The analyst says Berkshire likely isn’t profitable in its current form. “The operation would be much more profitable attached to an Assante, a Dundee, a Manulife or an Industrial Alliance, which already have much of the same investments that Berkshire does. They’d be able to drive significant costs out,” he says.

After two years of rumours and false starts, he adds, the Berkshire situation is reminiscent to the boy who cried wolf: “People shrug their shoulders: ‘Another Berkshire rumour.’ But one of these times, it will be accurate.” IE