Canaccord significantly undervalued in management group bid: committee

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The special committee of the board of Canaccord Genuity Group Inc. says the investment dealer has been significantly undervalued by a management group seeking to privatize the firm, and has hired Barclays Capital Canada Inc. to “explore potential strategic alternatives to enhance shareholder value.”

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The special committee obtained an independent valuation from RBC Capital Markets that values Canaccord between $12.75 to $15.75 a share, or as much as 40 per cent more than the offer of $11.25 per share.

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“RBC has also delivered its opinion that, as of Feb. 15, 2023, the consideration under the offer is inadequate from a financial point of view to the holders of the common shares of the company other than the management group,” the special committee said in a statement on Feb. 27.

“The special committee believes there is greater value in the company than reflected in the offer price based on the RBC formal valuation.”

The management team behind the proposed buyout, which includes chief executive Dan Daviau and chairman David Kassie, holds approximately 21.3 per cent of the shares, and said the $1.1-billion all-cash takeover bid announced in January offered a nearly 31 per cent premium to where the stock was trading.

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But the RBC valuation pegs the company’s “sum of the parts” worth, including its valuable wealth management division, much higher. The wealth business, with nearly $35 billion in assets under administration, is given a valuation of $810 million to $941 million, or of $7.75 to $9 per share, according to regulatory documents filed Monday.

The special committee said the firm should not be valued as if it were being broken up and noted that the share price has “significantly exceeded” management’s offer price within the past 12 months, and traded within RBC’s valuation range.

In a separate statement Feb. 27, the management group called RBC’s valuation “highly theoretical, unrealistic and flawed,” saying it overlooked and failed to account for “reasonable and appropriate” adjustments.

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In its offering document, the management group says, for example, that the valuation applied to the wealth business assets “significantly differs from applicable historical transactions in Canada” and from published research on the company. As a result, the RBC valuation overstates the real value by between $377 million and $508 million.

“We are pleased to be proceeding with our formal offer, which provides immediate certainty of value and liquidity for shareholders at a substantial premium in a volatile market,” Daviau said in the statement. “The offer has received strong support from the company’s largest independent shareholders, in addition to the most senior and tenured executives and employees of the company, who share our view that becoming a wholly employee-owned business will allow us to intensify our focus on driving client success, while retaining our independence.”

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The special committee, whose members include Gillian Denham, Charles Bralver, Dipesh Shah and Sally Tennant, has had discussions with the management group, but the two sides have not been able to come to an agreement. As a result, Barclays was retained by the special committee to consider options, which include keeping the investment dealer intact and continuing with its existing strategy.

The special committee said the management group is relying on an opinion from Raymond James Ltd., which is “is not independent” from the group, to back its takeover offer. Moreover, “its fairness opinion is not independent financial advice, nor does it constitute a formal valuation by an independent valuator,” the board committee said.

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The offer is open until June 13.

Daviau and Kassie are no strangers to upheaval and controversy. The pair was among a small group of former Canadian Imperial Bank of Commerce investment bankers who formed independent dealer Genuity in 2005. Some of the defections from CIBC to join the new independent firm headed by Kassie triggered a lawsuit, including accusations of breach of contract, which was ultimately settled.

In 2010, Genuity was acquired by Canaccord, another independent Canadian dealer, to form Canaccord Genuity.

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