CI’s U.S. business ready for IPO, CEO says

CI Financial Corp.’s U.S. and Canadian businesses are “ready for separation” ahead of the firm’s planned spinoff of its U.S. business, said CEO Kurt MacAlpine during a conference call following the release of fourth-quarter results Friday.

“Our U.S. business operates entirely independent from the Canadian business,” MacAlpine said. “The leadership team is fully staffed in our U.S. headquarters [in Miami] and structurally ready for separation.”

In October, Leonard Gullan joined CI as executive vice-president and CEO of CI Private Wealth U.S., overseeing the firm’s operations and integration.

However, MacAlpine said the firm had not yet determined the share of the U.S. business it hoped to spin off, and that it would be “flexible” depending on how the IPO process unfolded.

“We don’t have a target percentage that we’re looking to sell, or a specific number that we’re managing for,” MacAlpine said in response to an analyst’s question. “We’re looking to maximize the value for our Canadians shareholders while allowing CI to retain meaningful ongoing participation in that business.”

When asked if CI would be open to the sale of CI Private Wealth U.S. or whether an IPO was still the preferred strategy, MacAlpine said that “the path that we’re pursuing currently is getting ourselves ready for the IPO. We’re working through the structural changes in the process to do that, and we should be ready once we get through the back end of the approvals.”

CI Financial had announced in April 2022 that it intended to sell 20% of its U.S. wealth management business through an IPO, and later said it would consider increasing that portion.

The firm has previously indicated it intends to retain majority control of the new public U.S. company post-IPO, and that all of the proceeds of the IPO would be applied to CI’s debt.

CI Financial began acquiring stakes in U.S. registered investment advisory businesses in late 2019 as part of a strategy to globalize its business. In the most recent quarter, CI acquired three RIAs, increasing its U.S. wealth management assets to $180.6 billion.

MacAlpine said that “as it relates to the remainder of the [current] quarter, we have no plans for cash outlays associated with acquisitions.”

For fiscal 2022, CI reported that the U.S. wealth business had $6.6 billion in net flows, while the Canadian business had $3.8 billion.

Scott Chan, director of research for financials with Canaccord Genuity Group Inc. in Toronto, called the organic growth rate of CI’s U.S. business “very healthy in a tough market,” adding that the firm “looks to be making strides on generating operational efficiencies” in the U.S.

However, senior analyst James Shanahan of Edward Jones in St. Louis expressed doubts about the company’s U.S. strategy.

“Figuring out a way to integrate these [acquired] businesses — to achieve some synergies, reduce expenses, improve overall operating performance — I think a lot more time and energy [from] management on those activities would be more productive for the long term,” Shanahan said.

Shanahan also characterized the U.S. IPO market as “pretty weak” and the likelihood of the CI IPO happening in the near term as “pretty slim.”

“I think it’s possible that it could be a summer of 2023 event,” Shanahan said.

In mid-January, CI’s common shares were delisted from the New York Stock Exchange, following its November announcement that it would do so as part of splitting the U.S. and Canadian businesses.

In December, CI submitted Form S-1 with the U.S. Securities and Exchange Commission to begin the process for the IPO. During today’s conference call, MacAlpine said that he couldn’t provide a timeline for when an IPO might occur due to the requisite quiet period.

CI Financial’s adjusted net income for the fourth quarter was $135.9 million, unchanged from the previous quarter, but down by 20.5% from $171.0 million for the same period last year. CI posted a net loss for the quarter of $8.3 million versus net income of $14.4 million for the previous quarter. Net income for Q4 2021 was $123.7 million.

The firm’s total assets under management across its asset and wealth businesses was $375.8 billion at the end of Q4, up by 11.2% from $338.0 billion at the end of Q3, but down slightly from $376.2 billion a year earlier.

Canadian wealth management assets were $77.4 billion at the end of Q4, down from $80.6 billion a year earlier. Canadian asset management net inflows were $1.6 billion in Q4, up substantially from $142 million a year earlier.

“Our positive net flows were led by our shorter-duration income products,” MacAlpine said. “Our products in these categories represent 13% of their category assets; however, we generated 47% of the category’s flows.”