The Canadian Imperial Bank of Commerce is acquiring a Chicago-based private wealth management firm for up to US$200 million in an unexpected move that comes less than a month after it completed the US$5 billion purchase of PrivateBancorp, which is based in the same U.S. city.
Canada’s fifth biggest lender said Monday that the “complementary acquisition” of Geneva Advisors “will enhance CIBC’s presence in the region, and build on the bank’s ability to deepen client relationships in the U.S.”
“This investment will add scale in key markets where we can offer clients differentiated, high-touch service,” said Larry Richman, group head of U.S. Region for CIBC and president and CEO of The PrivateBank.
The definitive agreement to acquire Geneva Advisors — CIBC will pay 25 per cent of the purchase price in cash and 75 per cent in CIBC common shares — is in line with the bank’s ambitions to expand its footprint in the U.S.
The PrivateBancorp deal, which was completed on June 23, helps CIBC grow its U.S. earnings from 5 per cent to 10 per cent of all profits immediately, with the aim of increasing that share to 25 per cent in the medium term.
Last month, CIBC chief executive Victor Dodig told the Financial Post that its predominant focus was to grow its footprint in the U.S. organically, but would “look at tuck-in acquisitions as they appear.”
If the deal is successful, Geneva Advisors, which focuses on high net worth clients and has US$8.4 billion in assets under management and roughly 100 employees, will become part of CIBC Atlantic Trust Private Wealth Management.
Some analysts said the deal and its timing caught them off guard.
“We were a little surprised by this transaction, announced so soon after the close of the PrivateBancorp acquisition,” Doug Young, an analyst with Desjardins Capital Markets in a note to clients. “With that said, in terms of size the transaction appears manageable and overall is on strategy with management’s goal to further add scale in the U.S.”
Brian Klock, an analyst with Keefe, Bruyette and Woods, said the “odd timing” may be in part due to the fact that the PrivateBancorp transaction was delayed by a few months — with CIBC sweetening its bid twice to reflect swelling bank stock valuations after the U.S. election — and discussions may have been underway for some time.
Still, he too was surprised by the deal as it adds another layer of complexity while already trying to integrate CIBC Atlantic Trust with PrivateBancorp.
The aim of the PrivateBancorp acquisition was to allow CIBC to offer personal and commercial banking to their wealth management clients at CIBC Atlantic Trust, as well as take advantage of the cross-sell opportunities between the two businesses, said Klock.
“It does make sense for them to try to grow more there … (But) why not just let that happen instead of trying to put another acquisition that you’re now going to try and integrate with the other two businesses?” Klock said.
However, Dodig has said recently that he is interested in tuck-in asset manager deals going forward, and the timing and pricing may have been right, Klock added.
Under the terms of the agreement, CIBC will acquire Geneva Advisors for up to US$200 million, of which US$135 million will be paid at closing and US$65 million is contingent on future conditions being met. CIBC expects the deal to close in the fiscal fourth quarter, subject to customary closing conditions such as regulatory approvals, and be accretive to earnings per share by fiscal 2019. The deal is expected to reduce CIBC’s Common Equity Tier 1 ratio — a closely watched capital measure — by approximately 6 basis points at closing. If successful, CIBC will have roughly US$50 billion in assets under administration in the U.S. on a pro forma basis.
John Aiken, an analyst with Barclays in Toronto, said that although the deal is not overly material, the focus on wealth management for U.S. acquisitions “should be reasonably well received.”
Wealth management is an attractive business as it doesn’t require banks to put up a lot of capital and generates a dependable, stable revenue flow.
“However, coming almost immediately off the heels of the PrivateBancorp purchase closing, this could raise some concerns that CIBC could be back on the acquisition trail too soon and potentially move the timeline forward for its next commercial bank tuck-in,” Aiken told clients in a note on Monday. “From a capital perspective, we have few concerns, given the significant portion of the purchase being funded through a share issuance.”