Laurentian Bank of Canada’s acquisition of AGF Trust is on strategy, says DBRS Ltd., but the rating agency has integration concerns.

Following Wednesday’s announcement that Laurentian will acquire 100% of AGF Trust Co., the rating agency said that the acquisition “is consistent with the bank’s strategy to build scale and distribution in its B2B Trust business.” DBRS notes the deal provides Laurentian with greater geographic distribution outside of Quebec.

However, DBRS cautions that, given that this is the second acquisition made by Laurentian Bank in the B2B space within the last six months, it is “somewhat concerned with the pace of integration”.

That said, DBRS indicates that those concerns are partially mitigated by the fact that the bank’s first acquisition, MRS Trust, which closed in November 2011, appears to be progressing on schedule.

Laurentian Bank is paying net book value at closing for AGF Trust, approximately $242 million in cash, DBRS notes, with contingent consideration to a maximum of $20 million over five years if credit quality criteria are met. The transaction is expected to close in August, subject to regulatory approvals.

DBRS says that Laurentian Bank management expects the acquisition to add $28 million to $30 million to 2014 net income, and that integration costs are expected to be $30 million to $35 million (pre-tax) and largely incurred in 2013. The bank will also be issuing $120 million in common equity to bolster its regulatory capital ratios.