GMP Capital offers shares, bonuses to convince advisers to sell stake in Richardson GMP

GMP Capital Inc. delivered a long-awaited plan on Wednesday to allow its investment advisers to cash in on their ownership stake in the company’s wealth-management business, a potential payday that grows significantly if the business prospers, but shrinks if stockbrokers depart.

As the final stage of a three-year restructuring, GMP unveiled details of an offer to purchase the minority stake in wealth-management division Richardson GMP Ltd. that it doesn’t already own, giving it full ownership of the operation.

GMP Capital, along with a group of 162 financial advisers and Winnipeg’s Richardson family, each own about one-third of Richardson GMP. The Richardson family has agreed to support the buyout deal, and is expected to hold a 39.7-per-cent stake in the resulting company. But GMP Capital still needs the support of its adviser team, which collectively manages $30-billion in client assets.

Under the terms of the offer, advisers would receive two shares of GMP Capital – a Toronto Stock Exchange-listed company – for each share they own in privately held Richardson GMP. To sweeten the offer, the company is also offering to pay $36-million in retention bonuses to keep advisers from jumping ship.

If they all agree to the deal, the group of advisers would own 29.6 per cent of the public company. Existing GMP shareholders would own the remaining 30.7 per cent, and are scheduled to vote on the transaction in April.

Terms of the two-for-one stock exchange between GMP and the owners of its wealth-management business were set after Royal Bank of Canada did a valuation of the business. The transaction values GMP at $2.57 a share, a price significantly higher than where the stock is currently trading – it closed Wednesday at $1.68, down 6.7 per cent, on the TSX.

GMP chair Donald Wright, an investment banking veteran, said: “The valuations are our best shot at the intrinsic value of our businesses.”

The Richardson family has a 163-year history of successful investments in financial services, agriculture and energy, and is worth an estimated $7-billion. GMP interim chief executive Kish Kapoor said: “This is the first significant business in which they are inviting people to participate alongside them in this public company transaction.”

Adviser retention plays a key role in determining where the final share price will eventually land. The deal states that shares will be subject to “downward adjustment” if adviser departures over the first year exceed more than 85 per cent of the firm’s assets under management.

In addition to setting aside $36-million in retention bonuses that will be paid to employees who remain with the firm, the company will also award up to $10-million in additional GMP shares over three years to advisers who grow their client assets under management.

The threat of departures is a real risk. Rival wealth managers such as Canaccord Genuity Group Inc. and Raymond James Ltd. have been aggressively recruiting advisers from Richardson GMP in recent years, capitalizing in part on uncertainty over the firm’s ownership.

Mr. Kapoor says the new firm will be ready to capitalize on the more than $7-trillion that the Canadian wealth management industry is expected to be worth by 2028 – up from $4.3-trillion today.

To combat further employee poaching, Mr. Marsh and Mr. Kapoor have been flying across the country pitching advisers on what is to come for the new wealth manager, including a new brand for the firm that has yet to be announced, but will include the Richardson family name.

Along with the pitch comes retention bonuses. Typically, these “bonuses” are known to lock advisers to a firm for seven to 10 years, but Richardson GMP is only asking advisers to commit to a three-year deal. Set up as a forgivable loan, any adviser who wants to leave before his or her contract is up is required to repay the outstanding loan amount.

Mr. Marsh said he is confident the three-year duration is sufficient to retain the majority of his adviser force. One indication, he says, is the support the firm received from a large portion of advisers just two hours into management’s company-wide call in Calgary on Tuesday night, prior to the public announcement.

The majority group of advisers – who represented more than 75 per cent of Richardson GMP’s assets under management – indicated their support for the transaction by signing an acknowledgement and support letter.

“That is a huge vote of confidence that we are on the right track,” Mr. Kapoor says.

The remaining 25 per cent were unable to participate in the call, but Richardson GMP executives anticipates the firm will receive 100-per-cent support from the advisers by the end of the week.

Mr. Kapoor said GMP’s executives and board decided in 2017 to focus on building a wealth-management platform. Eight months ago, GMP exited the capital markets business, selling its investment banking arm to U.S. brokerage house Stifel Financial Corp. for approximately $65-million. After selling its capital market division, GMP holds approximately $198-million in cash.

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