Montreal-based fiera Capital Management Inc.’s purchase of YMG Capital Management Inc. of Toronto should give the combined firm the heft it needs to broaden the range of services it provides, Fiera executives say. It should also give YMG, which has been the scene of a messy management proxy battle, a fresh start.

“Few firms succeed in having a good a position in Ontario as well as in Quebec,” says Sylvain Brosseau, Fiera’s president and COO. “This move allows us to position ourselves as a Canadian leader.”

As for YMG, the deal “gets us to the place where we want to be,” says Eric Innes, president of 20-year-old YMG.

The combined company will have $26 billion in assets under management, vaulting it into into fourth place on the list of Canada’s leading independent money-management firms.

Firms with less than $15 billion in AUM tend to be specialized, lacking sufficient revenue flow to diversify their lines of investment, Brosseau says. “Above $20 billion, you get the resources with which you can build the infrastructure for the diversified investment processes you want to offer,” he says.

At the top of the AUM chart of independent money managers stands Vancouver’s Phillips Hager and North Investment Management Ltd. , with $53.8 billion in assets. Following in descending order are Jarislowsky Fraser Ltd. of Montreal ($48.1billion) and Toronto-based Connor Clark & Lunn Financial Group ($26.6 billion). Nipping at Fiera/YMG’s heels is Montreal-based Addenda Capital ($24.3 billion).

The purchase plan, unanimously approved by YMG’s board and scheduled to close at the end of January, will give public shareholders $3.25 in cash for each YMG common share held. This represents a premium of 22.2% over the 20-day volume-weighted average trading price of YMG’s shares up to Nov. 14, 2005. The transaction totals $45 million and makes YMG a private company. At Investment Executive’s press time, the new entity’s corporate structure and any new roles for senior management were unavailable.

The match is complementary on several levels. Although YMG is more tilted toward fixed-income management, Fiera offers a balanced overall mix. YMG’s strength in quantitative management will significantly boost Fiera’s capacity in this area. Fiera opens up the Quebec market to YMG, which opens the Ontario market to Fiera.

Pre-YMG, Fiera was a medium-sized firm with $11 billion in AUM. It was created in September 2003 with the purchase by Centria, a holding company owned by former TAL Global Asset Management Inc. founder Jean-Guy Desjardins, of 70% of Elantis Investment Management Inc., a management firm that belonged to Desjardins Group. Desjardins wanted to adopt a multi-management approach, which most financial institutions were taking at the time. It kept a 30% share in the new entity, transferring into it all the assets it had under management at Elantis and adding to that investments it managed in other groups. Straight out of the gate, Fiera had $8 billion of assets to manage.

Shortly after that deal, Jean Monty, former CEO of Bell Canada Enterprises, joined Centria as a 20% minority partner. Fiera’s managers then acquired a 20% stake in their own company from Centria, reducing Centria’s share to 50%. Desjardins’ stake remained at 30%.

At the outset, Fiera held a well- balanced selection of portfolios in segregated, mutual, institutional and pension funds. It has since added $3 billion in assets — essentially by acquiring in June 2005 Toronto-based Senecal Investment Counsel Inc. , which manages $1.2 billion in assets — and has moved into portfolio management for wealthy individuals, religious communities and foundations.

“As managing shareholders, we operated in an ideal context,” says Brosseau. “We have the enthusiasm of a start-up, but with an interesting asset base and two heavyweights, Jean-Guy Desjardins and Jean Monty, who attract new clients.”

Feria now wants to link its destiny to that of YMG, a firm that has had a difficult passage after the technology blowout of 2000. In the late 1990s, Greg Edwards, then president of the firm, developed business in venture capital and high technology. When the technology bubble burst, financial performance suffered and Edwards wanted to cash out. To do so at a favourable price, he hoped to find a strategic partner to buy him and YMG out at the same time. With the help of minority shareholders, he launched a proxy fight to overthrow the existing board and pave the way for the partner. But the vote turned against him, with public shareholders backing the board and management.

@page_break@Brosseau believes these problems are now behind YMG. “In spite of these troubles, management has kept things in focus,” he says. “Returns in the portfolios [have] remained impeccable, ranking in the first quartile of all asset categories they manage.”

The YMG team also grew the business, increasing assets to $15 billion from $12 billion. “We had record profit and revenue last year, and it will be the same again this year,” adds Innes.

But the proxy fight nevertheless left a dark cloud over YMG. “The noise in the media with respect to the proxy fight and the history of relations with our former CEO have made it difficult for us to acquire new clients,” Innes says. “We had to find a way to remove the public company visibility that sticks to us and, at the same time, purchase the shares of our former CEO.” This made YMG look for a suitor.

With more than 20 candidates knocking at YMG’s door, why did it choose a start-up like Fiera?

“As a public company, in some ways it was not our choice,” Innes says. “Our first priority was to find a company that would offer the highest value to our shareholders. You have to understand that we’re not manufacturing steel here. Our business is our relationship with clients. We had to find an organization that we felt was capable of impressing our clients and maintaining the relations between them and our portfolio managers. Otherwise, our clients could simply turn their backs on us and go elsewhere. Fiera met our criteria. It paid a fair price, and it values the people and clients we have.”

Cultural issues, which can cause mergers to falter, look like they won’t be a problem. Both companies have a strong entrepreneurial bent, although Fiera’s team is younger than YMG’s. But the age difference doesn’t faze Brosseau: “It will provide a good mix of experience and youth.” And both companies believe investment decisions must rest with managers, not with investment committees, and that managers must be held accountable for their decisions.

“We want to build a company for the future, and YMG gives us the opportunity to do so,” Brosseau says.

For the time being, a foray into the U.S. is not on the agenda. “We’re thinking of building a platform that could bring us into the U.S. in three to five years,” Brosseau says. “But, up until now, we’ve done everything a lot faster than planned.” IE