Gerald Sheff, co-founder of Gluskin Sheff + Associates Inc.Fernando Morales/The Globe and Mail
Update: Gluskin Sheff has announced that after consideration, it will not seek a sale at this point. Our earlier exclusive on it seeking buyers appears below.
Another venerable Canadian asset manager is up for sale.
Money manager Gluskin Sheff + Associates Inc. is entertaining takeover offers, according to people familiar with the matter. The company has hired investment bankers to explore the possibility of a sale and interested buyers have submitted bids.
As of Friday's market close, the Toronto-based company had a market value of $549-million.
The timing coincides 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 all-time 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.
Should Gluskin Sheff be sold, the deal would extend the trend of industry consolidation in Canada. In the past two years, Wellington West and the full-service retail brokerage 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.
Gluskin Sheff did not respond to requests for comment.
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.
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.
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 sub-par 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. Gluskin Sheff's stock has 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.
Editor's note: An earlier version of this story incorrectly identified HSBC's full-service retail brokerage as its wealth management business. This version has been corrected.
(Tim Kiladze is a Globe and Mail Reporter.)
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Tim Kiladze