DBRS Comments on IGM Financial Acquisition of Saxon Financial

DBRS has commented today that IGM Financial Inc. (IGM or the Company) continues to be a consolidator in the Canadian asset management business with the recently announced acquisition of Saxon Financial Corporation (Saxon) by IGM’s subsidiary, Mackenzie Financial Corporation (Mackenzie). This acquisition adds $13 billion in assets under management (AUM) to Mackenzie’s existing $59 billion, bringing total AUM for IGM Financial to $126 billion. There are no rating implications from the announcement given the size of the transaction.

The cost of the acquisition is expected to be approximately $287 million, with funding provided by a bridge facility, with take out funding provided through a capital market issue expected later in the year. Should the acquisition be funded entirely with debt, the size is sufficiently small that the consolidated total debt ratio, including both debt and preferred shares, would increase to just 24.1% from 20.3% at the end of June 2008. Given IGM’s stable earnings performance generally, its successful track record at integrating acquisitions and the expectation that the Saxon acquisition will be accretive to earnings, DBRS does not regard this slight increase in leverage to be inconsistent with the Company’s current senior debt rating of A (high).

Saxon is a Canadian investment management company, which focuses on institutional asset management, primarily through sub advised arrangements with MD Financial, a financial service provider to the Canadian Medical Association. Saxon has approximately $11 billion in institutional AUM and an additional $2 billion in retail mutual funds. The largest shareholder of Saxon Financial is CMA Holdings, which holds 30% of Saxon. Robert Howson and Richard Tattersall own an additional 15%. These three investors have all agreed to the acquisition.

In addition to the $13 billion of AUM, Mackenzie is acquiring additional expertise in managing value-focused equity funds and in fixed income portfolio management. The Saxon mutual fund offering is complementary to Mackenzie’s existing mutual funds.

Consolidation continues in the institutional asset management business as large mutual fund companies continue to seek additional AUM and complementary fund management styles and expertise. The acquired companies are benefiting from the opportunity to be part of larger entities with more efficient scale, especially as the administrative cost of regulatory compliance imposes increasing burdens on all competitors.

Note:
All figures are in Canadian dollars unless otherwise noted.