To ensure clients and advisers at Burgundy move over to the bank, BMO will hold back $125-million of the purchase price and pay it out 18 months after the transaction closes if Burgundy holds on to a predetermined amount of assets.Sean Kilpatrick/The Canadian Press
Bank of Montreal BMO-T beefed up its wealth management business on Thursday by acquiring Burgundy Asset Management Ltd. for $625-million.
Toronto-based Burgundy manages $27-billion for wealthy families and foundations and is owned by its employees, including co-founders Tony Arrell and Richard Rooney.
To ensure these clients and their advisers at Burgundy move over to the bank, BMO will hold back $125-million of the purchase price and pay it out 18 months after the transaction closes if Burgundy holds on to a predetermined amount of assets. Burgundy’s owners will receive BMO shares in payment for the asset manager, a tax-efficient structure.
If profits at Burgundy meet certain targets in the future, BMO said it may also include an earn-out payment – an additional settlement typically paid out to the seller of a company over time.
Burgundy was founded in 1990 and has 150 employees at offices in Toronto, Montreal and Vancouver. In a note to clients on Thursday, Mr. Arrell said the company had planned to deal with succession by selling the founders’ stake in the firm to new staff.
“In large part due to Burgundy’s success, we have found it more difficult than expected to transition ownership of Burgundy from the founders and current leadership to the next generation of our people,” Mr. Arrell said. “After long study and much discussion, we ultimately determined that joining BMO, the strongest possible partner, offered the best path forward.”
Mr. Arrell pitched Burgundy to a number of banks and asset managers over the past year prior to striking a deal with BMO, according to four sources involved in the sales process. The Globe and Mail is not naming the sources because they are not authorized to speak for the companies.
Talks with other possible buyers broke down over concerns with Burgundy’s growth potential and the price Mr. Arrell initially placed on the platform, the sources said.
Burgundy chief executive officer Robert Sankey will continue to run the business within BMO’s wealth management group. Mr. Arrell and Mr. Rooney are also staying with the company. The transaction requires regulatory approval and is expected to close by the end of 2025.
All the Canadian banks have built wealth management platforms, a source of predictable earnings, by acquiring employee-owned firms. The largest takeovers include Royal Bank of Canada’s purchase of Phillips, Hager & North Investment Management Ltd. for $1.36-billion, Toronto-Dominion Bank’s acquisition of Greystone Capital Management Inc. for $792-million and Bank of Nova Scotia’s takeover of Jarislowsky Fraser Ltd. for $950-million.
“Burgundy Asset Management is one of Canada’s most respected independent investment managers,” Deland Kamanga, group head of wealth management at BMO, said in a news release. “The acquisition will build on BMO’s heritage as a client-focused wealth manager.”
Adviser retention will play a key role in determining what the final price will be. The companies did not disclose whether they will offer retention bonuses to ensure financial advisers at Burgundy will commit to the transition.
BMO and Burgundy declined requests for interviews.
Typically, retention bonuses lock advisers into a firm for seven to 10 years, but in some contracts – such as the ones Richardson Wealth introduced when it went public – the time was limited to three years. Set up as a forgivable loan, advisers who wanted to leave before their contract was up were required to repay the outstanding loan amount.
Rival independent wealth managers such as Canaccord Genuity Group Inc., Raymond James Ltd. and Wellington-Altus have been aggressively recruiting advisers and their large books of business to boost their assets under management, while over the last decade the Canadian banks have also sharpened their focus on their wealth management arms, including their securities brokerages and advisers.
With $27-billion in assets under management, BMO is paying a price-to-AUM multiple of 2.3 per cent, which is similar in cost to Scotiabank’s purchase of Jarislowsky Fraser at 2.4 per cent and TD’s acquisition of Greystone at 2 per cent, according to CIBC analyst Paul Holden. The measure indicates that BMO paid a fair purchase price for Burgundy.
“The transaction will add a good amount of high-net-worth AUM, which should be a positive over time for BMO’s wealth franchise,” Mr. Holden said in a note to clients. “The ultimate success of the transaction will need to be judged over years based on client and AUM retention and conversion of Burgundy wealth clients to BMO wealth and banking clients.”
Mr. Holden estimates that the acquisition will increase BMO’s earnings per share by about 0.5 per cent while decreasing its common equity tier 1 (CET1) ratio – a measure of a lender’s ability to absorb losses – by 10 to 15 basis points. (A basis point is one-hundredth of a percentage point.)
As of the second quarter ended April 30, BMO’s CET1 ratio was 13.5 per cent, well above regulatory requirements.
Burgundy’s financial advisers on the sale are KMS Capital, Origin Merchant Partners and PJT Partners. Torys LLP acted as legal counsel.
BMO used its own investment bankers at BMO Capital Markets and law firm Osler, Hoskin & Harcourt LLP as its advisers.
