CI Financial Corp. CIX-T has sold its minority stake in a U.S. wealth manager, saying it plans to use the proceeds to pay down debt.
CI did not say how much it will receive for selling its ownership in Congress Wealth Management LLC, a Boston-based company with offices in seven cities, to Audax Private Equity. According to CI’s financial statements, CI had a 45-per-cent interest in the company as of Dec. 31.
The sale marks a shift for CI, which has expanded in the U.S. under chief executive Kurt MacAlpine. Starting in earnest in 2020, CI paid a total of $2.85-billion for more than 30 wealth management firms, nearly all in the U.S., in just over two years.
CI slowed down the acquisition pace in 2022, however, as analysts pressed the company on whether it could improve its balance sheet. With $4.4-billion in debt at Dec. 31, the company’s ratio of debt to EBITDA – or earnings before interest, taxes, depreciation and amortization – spiked to 4.3, according to S&P Global Market Intelligence. It was 2.0 at the end of 2019. (CI calculates the number differently, owing to adjustments in its earnings measure.)
The sale of its Congress Wealth stake also indicates that CI is placing great value on owning 100 per cent of its U.S. wealth managers, or at least a majority stake that would allow it to control their management.
In a statement, Mr. MacAlpine noted the Congress investment, announced in May, 2020, came before CI created its CI Private Wealth division, which owns the U.S. advisers, with a “differentiated private partnership model.”
“Unfortunately, the ownership structure at Congress precludes it from fully integrating” into CI Private Wealth, Mr. MacAlpine said in the statement. “CI and Congress believe that minority ownership is not the best structure to maximize the client and employee experience.”
Investors pump money into CI Financial funds, but company reports loss
CI’s sale of Congress will leave three other non-controlling ownership stakes in its portfolio: Arkansas adviser and wealth manager the Cabana Group LLC (49 per cent); GLASfunds LLC, an alternative-investments platform in Cleveland (30 per cent); and wealth manager Columbia Pacific Advisors LLC (31 per cent).
While CI did not reveal the sale price, it said it “received a return of approximately three times its initial investment in Congress.” At the time of the announcement of its investment in Congress in May, 2020 – in which CI did not reveal the purchase price – Congress managed US$2.3-billion in assets. CI was helping finance an acquisition that would help Congress top US$3-billion.
In May, 2021, Congress acquired Pinnacle Advisory Group of Maryland for undisclosed terms, increasing its assets under management to US$5.6-billion.
Congress president Paul Lonergan said in Thursday’s statement that “we are exiting on the best of terms,” and the backing from Audax, also based in Boston, would enable it to “pursue additional M&A opportunities.” Audax says its 160 portfolio companies, which operate in a variety of industries, have gone on to make 1,200 additional acquisitions.
In June of last year, Audax invested a “nine-digit” amount in Vancouver-based Harbourfront Wealth Management, the B.C. firm’s CEO Danny Popescu said at the time. Harbourfront said the investment would allow for both a $30-million special dividend to its owners and funding for growth plans, which included two possible acquisitions at the time.
With a report from Clare O’Hara
David Milstead