After a dramatic year in which it walked back an IPO and sold a minority stake in its U.S. wealth management arm, CI Financial Corp., the Canadian behemoth asset manager, has embraced another big change and given its U.S. wealth business a new name, rechristening it “Corient.”
The firm made the announcement yesterday, explaining that it had come up with a portmanteau word of “client” and “oriented.”
“The Corient brand embodies our mission to put our clients at the center of everything we do,” said CI Financial’s chief executive officer, Kurt MacAlpine, in a prepared statement. “We exist for one reason: to help our clients achieve their financial goals, simplify their lives and establish legacies that will last for generations. The new name better reflects the extensive capabilities we offer today as a national, integrated organization and our vision to become the country’s pre-eminent private wealth firm.”
CI Financial dipped its toe into the U.S. registered investment advisor world in 2020, buying four firms by midyear with $8 billion, and since then has gone on a debt-fueled acquisition tear. By 2021, the firm was close to buying a firm a month, and according to Moody’s Investors Services, CI had bought up some 28 RIA firms by March of this year, including many high-quality RIA firms that are leaders in their individual markets. The company says its U.S. wealth management business now oversees some $147 billion in assets.
The firm has notably pursued an integrator approach. “Corient now serves as the brand for all of the company’s offices, as it has discontinued co-branding with its legacy firm names, effective immediately,” the company said in its announcement. “This reflects the ongoing integration of Corient’s predecessor companies into one cohesive registered investment advisor firm.”
MacAlpine added that among its achievements, the business has “established a tax practice and a trust company; we have delivered better investment pricing and lending rates; and we significantly strengthened our alternative investments platform. Today, we are operating under an integrated platform that, along with our collective scale, enables us to better serve the complex needs of our clients.”
The acquisitions were notably expensive, coming at a time of high multiples for RIA firms and more recently rising interest rates, thanks to the Fed. The acquisitions eventually raised CI’s debt-to-EBITDA ratio to 4.3 times, Moody’s said, though the pro forma number has come down after CI sold 20% of the U.S. wealth business.
Cutting down that leverage was one of the reasons for the sale of the minority stake to a consortium that included private equity company Bain Capital, a $1 billion investment that effectively scuttled the IPO and which CI said represented 25.6 times the annualized adjusted EBITDA of CI’s U.S. wealth management business. The minority holders’ stake was held in convertible preferred equity, which, according to Moody’s, essentially gave a put option to the underlying investors.
The IPO was abandoned, observers suggested, not only because the public markets hold their noses at higher debt ratios—but also, because they simply don’t see the value that private equity does in the RIA space, and CI both wanted and needed that value unlocked, especially if it were to keep acquiring new RIAs and needed access to debt.
The Bain sale was heralded at first, but later the fine print spooked some analysts who said that the Bain team was entitled to a heavy return of capital that would require an eye-popping 14.5% minimum annual return over six years.
“CI would need to IPO the U.S. wealth platform at 31x EBITDA six years from now in order for the institutional investors to earn their guaranteed minimum rate of return (assuming that EBITDA compounds at 10% in the interim),” wrote Nik Priebe and Adam Saad, analysts at CIBC Capital Markets, in a note in mid-May. “Suffice to say, a 31x IPO multiple feels aspirational to us (to say the least) in any market environment.”
A CI investor relationship specialist spoke with Financial Advisor in early June and said 14.5% is a doable thing and the CI Financial mothership in Canada is protected from harm to its share price by any demands made by the minority investors.
Moody’s, for its part, is not spooked and has maintained its ratings on CI Financial.
“The RIAs that CI has acquired range in size, national presence and capabilities,” Moody’s wrote on May 31, “but they all operate [profitably] and have experienced organic growth in the high single digits. The segment's EBITDA margin for the last 12 months ended 31 March 2023 was about 33%. Given the high quality of acquisitions made to date, CI's profitability has remained strong despite the increasing acquisition-related charges that tend to depress [International Financial Reporting Standards] profitability. The company's five-year average annual pre-tax income margin stood at 27%, which is above our expectations for Baa-rated companies.
Besides Bain, the other institutional investors in the minority sale were a wholly owned subsidiary of the Abu Dhabi Investment Authority, Flexpoint Ford, Ares Management funds, the State of Wisconsin and others.