CI Financial CEO Shrugs Off Debt, Says Buying U.S. RIAs Pays
CI Financial’s costly bid to build one of the fastest-growing registered investment advisory platforms in the U.S., which began in earnest last year, is starting to bear fruit, Chief Executive Kurt MacAlpine said on the Toronto-based asset manager’s fourth-quarter earnings call on Thursday.
The company closed on five RIA acquisitions last quarter, nearly doubling its U.S. wealth assets to $23 billion. This year, it announced the purchase of Chicago-based Segall Bryant & Hamill, which is expected to close by mid-year. The RIA has $6 billion in wealth management assets and $17 billion in institutional assets.
The U.S. RIA business could become CI Financial’s “most lucrative segment,” as measured by adjusted Ebitda, MacAlpine said, although he gave no timeline.
Asset management, CI’s largest segment, provided about 75% of the firm’s $438.2 million (U.S.) in total revenue last quarter. Its adjusted earnings per share rose 8% from the fourth quarter of 2019 to $0.56.
The U.S. RIA business last quarter was a strong contributor to CI’s free cash flow, which rose 4% to $118.1 million from third-quarter flows. To be sure, the cashflow was down 11% from $132.6 million in the year-earlier quarter, but CI’s adjusted earnings before interest, taxes, depreciation and amortization sprouted 11.7% quarter-over-quarter and 2.1% year-over-year to $179.9 million.
CI, which is listed on the Toronto and New York stock exchanges, has been leveraging up to finance its expansion. It issued $960 million in notes in the U.S.—representing more than half of its net debt—in December 2020 and January 2021, “demonstrating a high level of investor interest and confidence in CI and our strategy,” MacAlpine said.
CI, which also repurchased 1.8 million shares for $23.6 million last quarter, had no U.S. debt two months ago. (The company’s shares were trading at a “criminally low” price, MacAlpine said.)
Despite the 35% year-over-year debt climb to $1.4 billion, MacAlpine remains interested in more deals. As long as the firm’s M&A pipeline remains robust, “we’re comfortable taking up leverage for a quarter or two,” he told an analyst who questioned the growing debt.
Shares of CI, which listed on the NYSE in November, were up 4.75% to $14.32 on the U.S. exchange in afternoon trading.
MacAlpine took the helm of CI in September 2019 with the goal of expanding the asset manager’s footprint beyond the “very mature and concentrated market” in Canada, he said in published interviews.