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CI Financial Corp. is selling a 20% stake in its U.S. wealth management business to a group of institutional investors for $1.34 billion, the Toronto-based firm said Thursday.

The investor group consists of a subsidiary of the Abu Dhabi Investment Authority, Bain Capital, Flexpoint Ford, Ares Management funds, the State of Wisconsin, and others.

“We believe the price that we received highlights the value of the [U.S.] business that we built in a short period of time, while allowing our shareholders to benefit from [retaining] 80% ownership on an ongoing basis,” Kurt MacAlpine, CEO of CI Financial, said in a conference call on the release of the firm’s first-quarter earnings.

The price paid for the minority position implied a $7.1-billion enterprise value for CI Financial’s U.S. business, representing 25.6 times the annualized adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of the U.S business, the firm indicated.

The proceeds from the transaction, when combined with the proceeds from CI Financial’s sale of its stake in Boston-based Congress Wealth Management announced in April, will be used to pay down the firm’s debt — reducing CI’s net leverage ratio from 4.0 times to 2.7 times adjusted EBITDA, factoring in the earnings reduction associated with the sale of the minority position in the U.S. business, the firm said.

CI Financial also announced on Thursday a tender offer for up to $1 billion of three tranches of CI debt maturing in 2024, 2025 and 2027.

Last week, S&P Global Ratings dropped CI Financial’s credit rating to junk following the firm’s request that the agency withdraw its rating. CI Financial maintains investment-grade ratings from both Moody’s and DBRS Morningstar.

CI Financial had announced in April 2022 that it intended to sell a stake in its U.S. business by way of an initial public offering, looking to unlock the value of CI shares.

However, “against the backdrop of robust private market interest and the worst IPO market in recent history, CI decided to pursue a private transaction to achieve the objectives of the IPO,” the firm indicated in its presentation material on the conference call.

“We still intend to IPO our business,” MacAlpine said. “However, this path [the transaction] allows us to better accomplish our objective of unlocking more value for our public company shareholders while instantly and meaningfully deleveraging.”

The investor group will receive preferred equity, convertible into CI Financial U.S. common equity. On any future IPO, the outstanding shares of preferred equity automatically convert to U.S. common equity.

In the event that the U.S. business isn’t spun out by 2030, “the [investor group] has a liquidation preference to ensure that they have an ability to get their capital back and return [it] to their shareholders in terms that are fair and reflective of the value of the business whether we IPO or take a different route,” MacAlpine said.

MacAlpine indicated that the firm would remain active in the U.S. acquisition market, should suitable opportunities arise: “If world-class firms continue to come to market, we’re going to be a buyer.”

Between late 2019 and 2022, CI Financial made more than 30 deals, either directly or indirectly, for U.S. registered investment advisor (RIA) firms as part of its strategy to grow its business in the U.S.

On May 1 the firm closed a deal announced in March to acquire Avalon Advisors LLC, an ultra-high-net-worth focused RIA based in Houston, Texas, with US$8.2 billion in client assets under management.

CI Financial said it would form a six-person board of directors to oversee the U.S business, comprising five members nominated by CI and one member nominated by the investor group minority shareholders.

The deal for the minority stake is expected to close by the end of this month.

CI Financial’s adjusted net income for the first quarter was $136.8 million, up from $135.9 million in the previous quarter, but down from $166.8 million for the same period last year.

The firm posted net income for the quarter of $30.2 million, up from a loss of $8.3 million in the previous quarter. Net income for Q1 2022 was $137.5 million.

Total net revenue for the quarter was $637.8 million, up from $620.3 million in the previous quarter and $633.8 million in the same quarter last year.

Expenses for the quarter were $583.0 million, down from $586.7 million in the previous quarter, but up from $448.0 million in the same period last year.

The firm’s total assets under management across its asset and wealth businesses were $391.1 billion at the end of first quarter, up from $375.8 billion at the end of the previous quarter and $361.0 billion at the end of the first quarter last year.