Foreign firms first came for Canada’s natural resources. Then they invested in our resources companies. Now, they are attracted to investment-banking boutiques with expertise in the mining and energy sectors.

In the space of a week, two such boutiques were bought out by firms eager to acquire coveted investment proficiency in Canada’s abundant natural resources.

Macquarie Bank Ltd. , based in Sydney, Australia, is buying Toronto-basedOrion Financial Inc. The annoucement of that deal was followed by Thomas Weisel Partners Group Inc. , based in San Francisco, saying it will acquire Westwind Partners Inc. , also of Toronto.

Not only did the deals come in quick succession, but both acquisitors paid more or less the same price for their new Canadian gems. In the Macquarie/Orion deal, which is valued at about $147 million, $30 million will be paid in cash when the deal closes, and almost 1.7 million exchangeable shares will be placed in escrow to be paid out over five years. The shares are exchangeable for Macquarie shares on a one-to-one basis for 10 years after their issue.

Meanwhile, the Weisel/Westwind transaction is valued at $146.7 million, which comprises an exchange of $45 million in cash and seven million shares of Weisel common stock.

It’s not hard to see why foreign players are coveting Canadian firms. Largely on the strength of a commodity boom, Canadian domestic markets have been extremely strong and securities firms are feasting. The latest data from the Investment Industry Association of Canada show revenue for the six months ended June 30 reached $9 billion, led by a record first quarter. Operating profits are up 29.4% to $3.7 billion as of June 30.

After the golden income-trust goose was killed, the securities industry could realistically have been expected to suffer. Although it’s true that the trusts have evaporated as a source of underwriting, there’s been plenty of other advi-sory business available, including a record market for mergers and acquisitions. According to the IIAC, commission and fee revenue is up strongly, too.

This year, the institutional boutiques that are the targets of the recent deals have performed particularly well. The IIAC reports their earnings almost doubled in the first half, compared with the same period in 2006.

Moreover, the two biggest sources of revenue for such firms — equity underwriting and commissions — are growing much faster than overall industry revenue. Although revenue from underwriting new equity issues for the industry overall slipped 3.2% from the first quarter to the second, domestic institutional firms saw their revenue from the segment grow 76.3% quarter-over-quarter. Similarly, overall industry commission revenue rose 5.2% in the first half, but jumped 27.6% for the domestic institutional firms.

Notwithstanding the recent impressive performance by institutional boutiques generally, the prize in the latest deals is future opportunities, not past glories.

The rationale for both the Macquarie/Orion and Weisel/Westwind transactions is somewhat similar. Buying out a Canadian boutique gives foreign firms access to investment banking, research, sales and trading expertise in the hot resources sector. It also allows them to expand in Canada. Both Orion and Westwind have offices in Toronto, Montreal and Calgary, and Westwind also has a London (U.K.) office.

For their part, the Canadian firms get a broader product shelf to help expand and diversify their businesses, as well as some cash and equity in the parent companies.

“Our objectives in acquiring Orion are, first, to round out our global resources investment banking business and, second, to extract maximum advantage from combining its successful Canadian operations in equity underwriting, sales, trading and research with the scale and global reach of Macquarie Securities,” says Nicholas Moore, global head of Macquarie’s investment banking group.

Similarly, Thomas Weisel, CEO and chairman of the firm that bears his name, says of the Westwind transaction: “This acquisition will give us access to the energy and mining sectors, which are key to expanding internationally, and are highly complementary to our existing coverage. Companies in these sectors are prodigious capital-raisers, and our growth brand applied to these sectors is a powerful combination.”

Although many of the headline aspects of the deals are similar, they are decidedly distinct transactions. Of the two buyers, Macquarie is a much bigger firm. It boasts a market capitalization of AUS$22.1 billion and reported more than AUS$1.9 billion in pre-tax profit on almost AUS$7 billion in revenue for its most recent fiscal year. Macquarie also already has a Canadian investment banking business focused on the infrastructure, utilities and resources sectors. (See page 16.)

@page_break@So, for Macquarie, Orion is a relatively small addition. The firm’s local executives are expected to stay on and the deal includes a retention component to ensure that key employees do stick around. However, an executive from Macquarie’s Australian investment-banking business is being brought in to head up the integrated Canadian operation, which will become known as Macquarie Capital Markets Canada Ltd.

By contrast, Weisel is a much smaller firm. Its market cap is around US$400 million, and consensus estimates for 2007 net revenue are slightly less than US$300 million. Westwind will add US$85 million-US$90 million in revenue for the current year, rising to between US$100 million and US$110 million in 2008, the firms say.

Based on relative size alone, the acquisition of Westwind is a more significant step for Weisel. Its CEO has stressed the importance of a cultural fit, saying that both firms see the deal as a significant step in the creation of a global, growth-focused investment bank. The company also says that it is looking for other acquisitions — particularly, M&A boutiques — and that it may announce one or even two more deals by the end of the year.

Analysts are generally positive on both deals. As Sandler O’Neill + Partners LP says in a report: “The Westwind acquisition will give the combined firm an increased international presence, while also expanding the existing coverage universe.”

The report further notes that Westwind’s London office currently generates about 30% of the firm’s revenue, which will help build Weisel’s European operations, which consists of offices in London and Zurich.

As for the Macquarie/Orion deal, a report from UBS Securities Australia Ltd. notes that the acquisition adds to Macquarie’s capability in global resources, while giving Orion access to a wider platform of products and services.

The report adds that the price Macquarie is paying looks fairly cheap: “The Orion acquisition continues [Macquarie’s] record of opportunistic acquisitions, all of which have been made at around book value.”

The UBS report also notes that Macquarie has executed a number of such deals in recent years. Earlier this year, it acquired Giuliani Capital Advisors, the investment banking subsidiary of Giuliani Partners LLC, owned by former New York City mayor and current U.S. presidential hopeful Rudy Giuliani.

UBS expects Macquarie to continue to undertake similar bolt-on acquisitions “to increase its capability and distribution presence in Europe and North America.”

While both Macquarie and Weisel are expected to keep making deals, Canada’s resources-savvy boutiques are clearly the flavour of the week for firms that are building by acquisition. IE