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By acquiring Acuity Investment Management Inc., AGF Management Ltd. expands its footprint in two important segments: institutional accounts and fixed-income assets.

AGF already has a presence in each, but buying Acuity allows both to grow quickly -- particularly fixed-income -- in what chief executive officer Blake Goldring described as an "era of consolidation."

Equities currently make up 63 per cent of AGF's funds, with only a small sliver coming from fixed-income, while 18 per cent of Acuity's funds are invested in fixed-income products.

Fixed-income asset management has quickly become the hot sector as investors flee from equity funds. A few weeks back Royal Bank of Canada shelled out $1.6-billion to acquire U.K. fixed-income player BlueBay Asset Management PLC.

AGF is buying Acuity for $325-million, which will be paid out in two parts: $223-million is paid up front in a mix of cash and shares, and the remaining $102-million will be paid out over three years. The exact amount of the deferred payments will vary depending on client growth or contraction.

The amount paid equates to 4.4 per cent of Acuity's total assets under management, according to Canaccord Genuity analyst Scott Chan.

To finance the deal, AGF is borrowing $200-million. Mr. Goldring said the firm could not use cash on its balance sheet because most of it belongs to AGF's trust.

For the moment, AGF has not assumed any revenue synergies in its model. Short-term savings are expected to come from the cost side, and could reach about 75 basis points within two years.

The deal is being heralded as a success for AGF, but Acuity also gains. As chief executive officer Ian Ihnatowycz pointed out, "we needed to rapidly increase our size to maintain our competitive edge."

Scotia Capital advised AGF on financial matters while Stikeman Elliot LLP covered legal issues. Cormark Securities was Acuity's financial adviser while Borden Ladner Gervais LLP hired for legal advice.



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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

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Royal Bank of Canada
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