Wellington West Holdings Inc. is back in acquisition mode after more than a year of sitting on the sidelines. The Winnipeg-based company \u2014 parent to full-service brokerage Wellington West Capital Inc. and financial planning firm Wellington West Financial Services Inc. \u2014 has purchased Brownstone Investment Planning Inc., a privately held financial planning firm also based in the Manitoba capital.
The deal will add about $375 million in assets under management, 22 advisors and 15 staff members to Wellington West\u2019s financial planning arm, bringing its total AUM to almost $1 billion. The purchase price was not disclosed. The deal is scheduled to close Oct. 31.
The deal is also part of the parent company\u2019s plan to be more aggressive in the financial planning sector, says Kish Kapoor, president of Wellington West, noting that he would like to see the financial planning division break through the $3-billion barrier in AUM within the next three years.
\u201cWe hunted down a firm like Brownstone. It was very compatible with us,\u201d Kapoor says. \u201cWe wanted to lead off with it as our first tuck-in acquisition, and target four or five more in 2010.\u201d
From Brownstone\u2019s perspective, it had maximized its growth potential on its own and needed to find a strategic partner to help get to the next level, says Murray Kipling, president of Brownstone, who\u2019s leaving his long-time management role to become a full-time advisor.
\u201cWe felt it was time to make a move because of economies of scale,\u201d Kipling says. \u201cIt was important to tie in with a company we felt was dynamic and strong. I believe we\u2019ll be in a better position to meet the needs of our clients [because of the Wellington West deal].\u201d
In particular, the cost of keeping on the cutting edge of technology was becoming too high, Kipling says: \u201cWe have our own self-directed RRSP and we make $5 million gross on that a year, but we pay $100,000 a year for our software. We just don\u2019t have enough people to try to keep up with the changes in technology and in the industry.\u201d
The presence of National Bank Financial Group<\/b>, which bought a 12.5% stake in Wellington West a year ago, was the final deal-maker, Kipling notes: \u201cWe think National Bank has really strengthened Wellington West. It gave us a lot of confidence to complete our deal.\u201d
Charlie Spiring, CEO of Wellington West, says he hopes bulking up his company\u2019s financial planning side will result in a significant boost to its asset-management division, which had launched a trio of pools and a separate management account earlier this year to compete with the offerings of mutual fund companies.
\u201cFinancial planners have a higher propensity to take one-ticket pools than traditional brokers. The planners don\u2019t have the full licence. They have a smaller quiver to pick from than brokers do,\u201d Spiring says. \u201cWe\u2019re putting a little more energy into the planning side of our business. We think there\u2019s some room there; it\u2019s been a neglected side of the marketplace.\u201d
A deal of this magnitude doesn\u2019t make much sense for a large dealer, but it does for Wellington West, which has about $8 billion in assets under administration, says Dan Richards, president of Strategic Imperatives Corp. <\/b>, a Toronto-based consulting firm to the financial services industry.
\u201cAssets of $350 million aren\u2019t enough to get some firms excited,\u201d he says. \u201cBut for a firm such as Wellington West, which is trying to build out the Mutual Fund Dealers Association of Canada<\/b> and Investment Industry Regulatory Organization of Canada<\/b> sides of its business, it makes strategic sense in terms of ramping up the asset base on the MFDA side.\u201d
Richards says he wouldn\u2019t overplay Wellington West\u2019s desire to build up its financial planning division. Assets are assets, he says: \u201cThe historical divide between financial planners and stock brokers [has shrunk]. More and more, financial planners act like stockbrokers. And, more and more, stockbrokers act like financial planners.\u201d
Still, there are a significant number of financial planners who prefer the MFDA platform, he says, so it\u2019s good strategy for Wellington West to accommodate them.
And now that markets have stabilized, Richards says, he expects the pace of acquisitions to pick up: \u201cSmall to mid-sized shops that need to grow will always be on the lookout for deals. It\u2019s getting tougher and tougher for small MFDA firms. I think there will be more of an appetite for deals [in the near future].\u201d
@page_break@Spiring says he\u2019s hungry to add firms in the micro- to mid-tier space to both sides of Wellington West: \u201cAnywhere from $100 million to $11 billion [in AUM], but the reality is $500 million-$5 billion is the sweet spot. This is our year of a full-on buy. It\u2019s eat or be eaten in this market. Anybody in the micro- to mid-cap size is having issues right now. The regulatory burden is increasing every day. If we were starting Wellington West today, I don\u2019t think we could do it successfully. The game has changed. We\u2019re lucky we started in 1993.\u201d
The anticipated flurry of deals during the market meltdown didn\u2019t occur, Kapoor says, because it was impossible to put a value on companies when the bottom was nowhere in sight: \u201cSellers weren\u2019t interested in selling. [The drop in valuation] was too sudden, too drastic and too sharp. They chose to wait until some stability returned. You couldn\u2019t come up with a formula that made sense for the buyer or the seller. Now, we\u2019re starting to see some signs of stability. People have confronted their worst fears in a declining market and they\u2019re starting to look at all of their options.\u201d
It wasn\u2019t that long ago that Kipling was on the other side of the acquisition game. In 2003, he had struck a complicated deal as president of Winnipeg-based Wright Financial Planning Group that saw his five-planner firm buy a majority stake in Brownstone.
After two decades in the business, Kipling says, he\u2019s looking forward to stepping back from management and becoming a full-time advisor: \u201cI\u2019m tired of travelling to Toronto and Calgary all the time. I want to spend my time with my clients.\u201d\tIE<\/b>
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