Shrinking independent dealers will crimp Canada's economy

News report: Richardson GMP buys Macquarie’s Canadian wealth management unit

You might have heard that Macquarie Canada had sold its retail brokerage arm and ~$13 billion of assets under management to GMP Securities last week for $132 million. But there was another shoe to drop, it seems, as Macquarie Canada’s institutional arm has decided to get out of every vertical that doesn’t involve rocks or oil & gas according to one of those affected by the restructuring. No more coverage of Canadian Industrials, Infrastructure, Utilities & Renewables, Real Estate or Telecommunications, Media, Entertainment & Technology companies.

Just a resource focus, which cannot be good for Canada’s economy.

When Macquarie came to Canada in 2007, via the acquisition of Orion Securities and Tristone Capital as its Toronto and Calgary institutional branches, established Bay Street players were concerned. Macquarie was well financed, driven and had demonstrated their serious plan to enter the retail stock broking business with the quick acquisition of Blackmont’s $7.6 billion AUM wealth management business from CI Financial for $93.3 million. All of that is unravelling, at least temporarily.

Unlike Stifel Nicholas, Macquarie isn’t exiting Canada completely, but there is a theme at work here. The Canadian institutional business is so tough right now that profitable international firms are scaling back. Stifel was having success with non resource clients such as Halogen Software and ViXS, but co-leading the two recent Canadian tech IPOs wasn’t enough of a victory to give the U.S. parent any hope about the near term business prospects of the current iteration of Westwind Partners, which Thomas Weisel acquired in 2007 at five times book value for its penetration in the Canadian resource industry. (Stifel went on to acquire Thomas Weisel, meaning its Canadian ops weren’t intentional, so to speak).

Almost overnight, Canadian growth companies looking to raise capital have lost two serious international doors to knock on. And let’s not forget Cantor Fitzgerald Canada, whose team appears to have gone the way of the four winds. The beneficiaries of this contraction are likely Cormark Securities, GMP Securities, National Bank Financial and Raymond James, who have shown a particular hustle in the innovation economy, for example. And the Big 5 Canadian banks won’t mind this development one bit.

But if you are the CFO of a Canadian growth company, your pool of potential investment bankers, institutional salesfolks and research analysts continues to shrink. For the longest time, I’d remind people that there were about 28 Toronto-based dealers who cared about smaller growth stories (see prior representative post “Presentation to the Ontario Select Committee on TSX/LSE merger” Mar 2-11); not any more. Unless there’s an uptick in business volumes next year, I’d expect the trend will continue. Which is not good for Canada’s economy.

Makes one yearn for the days when the connected issuer rules kept independent firms such as Midland Walwyn Canada in business, through thick and thin. Goes to show you that regulatory decisions made to benefit the banks aren’t always good for the rest of Canada.

MRM