CI Financial Corp. will delist its shares from the New York Stock Exchange when it lists its U.S. wealth management business on a U.S. exchange, as part of its plan to split the firm effectively into two businesses.
During a conference call to announce CI’s third quarter earnings on Thursday, CI CEO Kurt MacAlpine said the firm will submit a Form S-1 this month to the Securities and Exchange Commission for the U.S. business IPO.
CI Financial had announced in April that it intended to sell 20% of its U.S. wealth management business through an IPO, and the firm is considering increasing that portion.
“While the Canadian and U.S. business will be initially consolidated for accounting purposes, we will think about them and manage them as separate entities,” MacAlpine said.
The Canadian business, which holds shares in the U.S. business, will retain all of CI Financial’s existing debt, including deferred guaranteed acquisition payments. The proceeds from the IPO are expected to go to deleveraging.
“Launching our U.S. business debt-free provides us with a unique strategic advantage and maximizes our ability to continue to build on our industry-leading growth, scale and margin,” MacAlpine said during the conference call.
After the U.S. IPO, CI expects that the Canadian business won’t fund any future U.S. acquisitions or pursue large M&A opportunities in Canada. (CI Financial is also listed on the Toronto Stock Exchange.)
MacAlpine said the firm would use the cash flows generated by the Canadian asset and wealth management business to deleverage and “to effectively privatize our business” through continued share buybacks.
James Shanahan, an analyst with Edward Jones, said that since early 2020, CI Financial has invested about $1.8 billion to build out its U.S. wealth segment, resulting in outstanding debt increasing by $2.3 billion to almost $4.0 billion.
“CI shares have underperformed Canadian financial services peers, which we attribute to management changes, strategic uncertainty, and rising debt,” Shanahan stated in a research note.
CI Financial will also migrate $14 billion of client assets with subsidiary Aligned Capital to its custody service platform, CI Investment Services, in the second quarter of 2023. The firm says it has directed resources to build out the in-house custody platform over the last two years.
Migrating client assets to CI Investment Services “allows for a better service experience for Aligned Capital Advisors in addition to attractive economics in the current interest rate environment,” MacAlpine said. “We anticipate the onboarding can drive at least $10 million of annual incremental EBITDA.”
The firm also plans to migrate Assante Wealth Management to in-house custody, and to offer those services to third parties in 2024.
Christopher Enright, executive vice-president and co-head of wealth, Canada for CI Financial, said that building out CI Investment Services would allow the firm to generate revenue through net interest margin, and by charging account and trading fees. CI Investment Services will be “a key driver for our success for Canadian wealth,” said Enright, who is leading the initiative to build out the business.
In October (after the third quarter ended), CI Financial closed two acquisitions: Eaton Vance Investment Counsel and Inverness Counsel, adding a combined C$18 billion of client assets. Inverness Counsel has been renamed CI Inverness Private Wealth.
CI Financial’s adjusted net income for the third quarter was $135.9 million, down from $149.1 million in the previous quarter and $159.2 million over the same period last year.
The firm’s total assets under management (AUM) across its asset and wealth businesses was $338.0 billion at the end of the third quarter, up from $333.7 billion at the end of the previous quarter and $313.2 billion at the end of third quarter last year.
Canadian wealth management assets were $74.0 billion at the end of the third quarter, down from $74.1 billion at the end of the previous quarter and $76.9 billion at the end of the third quarter last year.
Asset management net inflows were $75 million in the third quarter, compared to an outflow of $4.1 billion in the previous quarter and an inflow of $821 million in the third quarter of last year.