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Gluskin Sheff sought bids, holding pat for now

Gerald Sheff, co-founder and chairman of Gluskin Sheff + Associates Inc.

Fernando Morales/Fernando Morales/The Globe and Mail

Gluskin Sheff + Associates Inc. confirmed Monday that the company recently entertained takeover offers, but management is holding off on a sale at this point.

The company made the comments in a public statement after The Globe and Mail reported that the venerable money manager hired investment bankers to explore a sale and that interested buyers had submitted bids.

"At the request of its founding shareholders, Ira Gluskin and Gerald Sheff, the company undertook a process to explore shareholder value maximization alternatives, which process has now concluded," the company said.

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Rather than sell now, the statement went on to say that current management is holding off. "The founders, the Board and management have concluded that the current platform remains an excellent way to serve clients and enhance shareholder value at this time."

No reasons were given for the decision and management also did not rule out the possibility of a future sale if the price is right. As of Friday's market close, the Toronto-based company had a market value of $549-million.

The timing of Gluskin Sheff's decision to entertain offers coincided nicely with rising stock markets. Though the S&P/TSX composite index continues to languish because struggling commodity producers make up nearly half of the Canadian market, both the S&P 500 and the Dow Jones industrial average recently set record highs.

These market gains have given investors the confidence to wade back into stocks – and to hire investment managers.

Rising markets have also boosted the value of Gluskin Sheff's assets under management, which amounted to $5.7-billion at the end of the last quarter, and they raise the likelihood that the firm's investment returns will meet more targets that would trigger performance fees.

Any deal would also extend the trend of industry consolidation in Canada. In the past two years, Wellington West and the wealth management arm of HSBC Bank Canada were both scooped up by National Bank of Canada, and Natcan Investment Management was acquired by Fiera Capital Corp. in 2012.

Because Gluskin Sheff did not rule out a future sale, it leaves the door open for any suitors. Possible acquirers include the big Canadian banks, which are especially hungry to bulk up their wealth management arms and are striking deals in the United States. Canadian Imperial Bank of Commerce just acquired Atlantic Trust Private Wealth Management, and Toronto-Dominion Bank acquired Epoch Investments for $668-million in December.

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Banks like managing clients' money because it generates predictable fee-based revenues and chews up very little capital. Their capital markets arms, by contrast, require extensive funding to serve as a cushion in case markets turn sour.

Gluskin Sheff also operates in a unique corner of the market, catering to families and individuals who have considerable assets, often worth $1-million or more. That puts the company into the coveted high net-worth category that the banks are aggressively pursuing.

However, banks aren't the only logical buyers. A rival money manager could enter the fray, and a Canadian private-equity firm has also been interested in adding an asset management name to its portfolio, according to someone familiar with the company's strategy.

Gluskin Sheff was founded in 1984 by Ira Gluskin and Gerald Sheff. Both men, now 70 and 72, respectively, are well-known in the money management industry and philanthropic circles.

Throughout his career, Mr. Gluskin served as chairman of the University of Toronto's Asset Management Corp. and was heavily involved in Jewish causes and foundations, while Mr. Sheff served on McGill University's board of governors as well as the boards of the Canadian Centre of Architecture in Montreal and the Art Gallery of Ontario Foundation.

Until 2000, the two men were the company's only equity holders, but shortly thereafter they diversified their ownership while expanding the number of funds the firm offered. Gluskin Sheff went public in 2006 in a $133-million deal, and in 2009 Jeremy Freedman was named chief executive officer.

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For much of 2011 and 2012, Gluskin Sheff's performance was mixed. When the company reported full-year earnings last fall, net income fell to $17-million from $50-million a year prior, and assets under management dipped to $5.4-billion. To keep investors interested, the company had to hike its dividend, as well as pay out a special dividend of 6 cents per share.

"This year was a very challenging year, and certainly it's management's intention not to have a year as challenging as this again," Mr. Freedman said at the time.

The subpar performance relative to industry darlings CI Financial Corp. and Fiera has been frustrating for the firm. In 2009, Gluskin Sheff hired prominent economist and strategist David Rosenberg to boost its profile and attract more assets, but since the end of 2010 the company has seen more client money leaving than coming in.

Lately, however, the future has looked much brighter. As of Friday's market close, Gluskin Sheff's stock had shot up 27 per cent since the start of the year.

While that makes the firm more attractive to suitors, it also raises the cost they will have to pay, especially considering management doesn't appear keen to sell the company at a price it deems too low.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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