Bank of Nova Scotia’s acquisition of MD Financial Management will bolster the bank’s position in the Canadian wealth management business and enhance its status with high-net worth investors, says Moody’s Investors Service in a report published on Monday.
The deal allocates capital to expand Scotia’s wealth-management business and helps it move from the “mass affluent” segment further into the lucrative high-net-worth market, the report says.
The report says the MD deal also builds on Scotia’s recent acquisition of Jarislowsky Frazer, adding “substantial scale and cross-selling opportunities” to the bank’s domestic wealth- management business, which will have $230 billion in total assets under management (AUM) after the deal closes.
MD’s senior management team will continue to run the day-to-day operations of the firm, Moody’s says, as MD will operate as a standalone operation within Scotia Wealth Management, to avoid disrupting its advisors.
In addition, MD advisors will gain access to a full range of Scotia’s banking products and services for their clients.
Additionally, MD currently has subadvisors for all of its funds, “so there will be an opportunity for [Scotia] to bring some of those mandates in-house over time,” Moody’s adds.
Scotia is paying “a full price” for MD, according to Moody’s, but this is “a premium franchise in Canadian wealth management.”
With $49 billion in AUM and assets under administration (AUA), the firm says that MD is the largest non-bank private investment counsel in Canada.
“From a valuation perspective, the purchase price equals 5.3% of MD’s total AUM and AUA,” Moody’s says, adding that Scotia expects the deal to be accretive to earnings in year three, excluding integration and amortization costs.
“The transaction allows [Scotia] to increase its reliance on wealth management as a source of earnings, an area where it has lagged the other Big Five Canadian banks. In addition, the acquisition financing is conservatively structured with a substantial equity component,” Moody’s concludes.