CI Financial will file to take US business public

Toronto-based RIA aggregator CI Financial (CIXX) plans to file an initial public stock offering for its fast-growing U.S. wealth management unit.

The filing, which is expected later this year, is aimed at unlocking the valuation potential of CI’s 2-year-old wealth management business, according to Chief Executive Kurt MacAlpine.

The subsidiary IPO, which will take 20% of the U.S. business public, gives MacAlpine another tool to achieve his objective of building the “preeminent high-net-worth and ultra-high-net-worth wealth manager in the U.S.,” he said.

Since entering the U.S. wealth sector in early 2020, CI has become the country’s fastest-growing wealth management platform and the U.S. wealth management business has grown to become CI’s largest business unit by assets.

Once all of its outstanding acquisitions are completed, CI’s U.S. wealth management assets will reach approximately $133 billion.

To this point, CI has financed its nearly three dozen U.S. acquisitions with cash and partnership agreements. Separating the U.S. business from the Canadian financial conglomerate means company stock will represent another method to pay for the purchase of registered investment advisers, MacAlpine said.

“If anything, this gives us more tools,” he said. “Going forward, we’ll be able to use cash, partnerships and shares. Right now, CI Financial is a U.S.- and Toronto-based company, so an RIA would get shares of both the Canadian and U.S. business. That’s asking a lot of a U.S. RIA.”

Since it purchased its first RIA in early 2020, CI’s pedal-to-the-metal push into the U.S. has included a November 2020 listing on the New York Stock Exchange to accompany the company's listing on the Toronto Stock Exchange, and the establishment of a U.S. headquarters in Miami last September.

But despite the overt migration south, CI executives and shareholders have remained frustrated by a stock price that seems anchored to the company’s Canadian asset management business.

“When you look at valuation differences between how asset managers trade and how wealth managers trade, asset managers are in the mid-single digits and wealth managers are in the high teens,” said MacAlpine, who insists the company’s current stock price doesn’t reflect the growth potential of the U.S. wealth management business, which now represents the largest piece of the Canadian company.

Investors reacted positively to the IPO news Thursday, driving the share price up about 4.5% in midday trading, which compares to a 60-basis-point decline by the S&P 500 Index over the same period.

But the longer-term track record is what has CI shareholders so motivated to separate the Canadian and U.S. businesses.

Since the start of the year, CI shares are down 28.7%, which compares to a 5.7% decline by the S&P 500.

John Aiken, who covers CI as an analyst with Barclays, has long argued that “we do not believe that the market is adequately valuing the U.S. wealth management segment in terms of its growth and potential. Consequently, we anticipate that spinning the segment out as a separate business should unlock significant value by forcing the market to recognize the unit’s intrinsic value.”

Following the IPO, the U.S. business will have a separate board of directors that will at least partially overlap with the parent company’s board, and MacAlpine will continue to oversee both the U.S. and Canadian businesses, he said.

“There’s not going to be any day-to-day changes to business operations,” he said. “I’ll be actively involved in both businesses.”

According to the announcement, CI intends to use the net proceeds from the IPO to pay down debt. CI will remain the majority shareholder of the U.S. wealth management business and currently has no intention of spinning out or otherwise divesting its remaining ownership interest.

Final decisions on the IPO size, conditions and timing are pending and will be subject to market conditions.