CI Financial approaches $500 billion in assets as it buys two more US wealth managers

Canada’s largest independent asset manager is nearing $500 billion in assets under management as it continues to snap up US wealth management companies despite continued investor concern about its debt load.

On Wednesday, CI Financial Corp. CIX-T reported total assets of $482.2 billion as of May 31, up from $410 billion a year earlier. Almost half of that stems from the company’s explosive acquisition strategy in the U.S.: Between late 2019 and the end of 2022, CI acquired nearly 40 registered investment advisers, or RIAs, that manage more than $230 billion in U.S. CI- he called it as a young man. American business Corient Private Wealth LLC.

Of the firms’ total assets, another $94 billion is in the Canadian wealth management business, $129.5 billion is in the asset management arm and $28.6 billion is in Canadian custody assets, a relatively new item on the balance sheet.

The company also announced this week that it has closed two RIA deals with combined assets of about $5.6 billion: Ohio-based Paragon Advisors Inc. and Socius Family Office LLC a business based in Fort Lauderdale, Fla. that specializes in wealth management for professional athletes.

I think we’ve proven that we can earn well, we can integrate well and drive growth across the integrated platform, Chief Executive Kurt MacAlpine told analysts on a May 10 conference call. So as long as exceptional businesses come to the market … they would be in the market.

The acquisition spree drove up CI’s debt, but the company was slowing deals and shoring up its balance sheet. However, CI stock stumbled after the May 10 release of its first-quarter results, falling to $14.72 from $16.75 the day before. CI shares continued to fall after the May 10 earnings release, closing at $14.42 on Wednesday.

Investors and analysts seemed surprised by CIs’ slightly higher debt levels and worsening credit metrics, although Mr. MacAlpine said the company was pushing ahead with the stock buyback. Long-term debt rose in the quarter by $100 million to $3.6 billion as of March 31.

Morningstar DBRS downgraded CI’s debt on May 30 to its BBB rating, the last step before non-investment grade or junk status. Credit rating agency Moodys Ratings made a similar downgrade in late April. CI is currently doing a debt swap, offering to buy up to $900 million in bonds from investors at a discount. The company said investors had tendered $570 million worth by the June 4 early tender deadline. CI plans to issue new debt to raise money to buy back the old debt.

When CI buys a new wealth manager, it often commits to making deferred payments or earnings as part of the deal. If profits in later acquired businesses meet or exceed certain targets, CIs are paid more money to the firms’ previous owners. As of March 31, CI reported $486.6 million in acquisition-related liabilities.

Last year, in an effort to start paying down debt, the company sold a 20 percent stake in its U.S. wealth management business to a group of institutional investors for $1.34 billion, saying the company was halting plans to acquire public business. The preferred stock that investors received had debt-like characteristics, and analysts put the effective interest rate on the financing at 14 percent. Purchasers of the preferred stock also have the right to force an initial public offering or sale of the US asset business within five years and nine months after closing.

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