UPDATE: Saxon sold to Mackenzie

After actively shopping itself around, Saxon Financial has found a buyer and a price it likes, courtesy of Mackenzie Financial.

Mackenzie will pay a generous price for the firm, offering Saxon shareholders $21.00 in cash per Saxon share, approximately a 65% premium over the stock’s closing price of $12.70 on Friday. The all-cash deal is valued at roughly $287 million.

Saxon manages about $13 billion in assets, mostly through its institutional money management division, Howson Tattersall. Saxon Funds Management, the retail mutual fund branch of the company, manages just over $2 billion, according to IFIC’s June sales report. Mackenzie Financial manages $42.5 billion in retail mutual fund assets.

Charles R. Sims, president and CEO of Mackenzie Financial and co-president and CEO of IGM Financial, says there were three key reasons for the purchase of Saxon.

“Number one, the value-equity side and the fixed-income side both appealed to us in strengthening the Mackenzie platform. The second part is the strategic partnership Saxon has with the Canadian Medical Association (CMA). Thirdly, their business is quite diversified between retail mutual funds and institutional and high-net-worth clients,” he says. “That’s a path that Mackenzie has been on for the past three years — diversifying our business. This acquisition will continue us down this path.”

Sims says the Saxon brand will survive within the Mackenzie family and will be offered as Mackenzie Saxon. The Howson Tattersall investment team will manage those funds. Mackenzie will retain the stand alone Howson Tattersall name for institutional clients.

Sims added that for advisors who sell Saxon products, it will be business as usual, and the fees would remain the same, although they will be migrated onto the Mackenzie platform.

“Both organizations have a very strong client and investor focus,” he says. “The levels of experience should be exactly as they were prior to the announcement.”

Saxon’s president and CEO, Robert Tattersall, and its CIO, Richard Howson, will continue to lead the Howson Tattersall investment management team through 2010, as laid out in their personal succession plans, which were announced in 2005 after a strategic alliance was struck with the CMA’s MD Financial Group.

Tattersall told Advisor.ca that he assumes the brand names will remain untouched for the time being since they’re part of the value Saxon brings to the table. Tattersall expects Mackenzie to use the Saxon name as a sub-brand of the Mackenzie fund family and use Howson Tattersall as a stand-alone name for institutional mandates.

“Right now Mackenzie is interested in perpetuating the good image we have both under the Howson Tattersall and Saxon brands,” he says.

Tattersall says this also includes maintaining almost all the mandates and investment philosophy of the firm.

“The investment style and value orientation of the firm will remain well in place. Key investment personnel will remain in place because that’s very much part of what Mackenzie wants to present to the investing public,” he says. “Clearly, the mandates will be retained for the time being because that’s what they [Mackenzie] are buying.”

It is likely, though, where there is overlap on the mandates in fixed-income products offered by Saxon, that they will be rolled into Mackenzie’s Sentinel brand of funds.

“The only opportunity we have to synergize [products] is on the fixed income side. Things like the money market funds and bond funds will all be integrated as we see fit under our Sentinel brand,” Sims says.

Tattersall says his firm has been committed to finding the best value for shareholders; in his opinion, an acquisition represented the best opportunity to do that. He says the company had been actively shopping itself around for some time after conducting a strategic review of how to maximize shareholder value in consultation with BMO Capital Markets.

“We looked at all of the options. We could grow organically in all three of our businesses. We could make an acquisition — a big acquisition, not just one or two private client businesses. Or we could be acquired. All three options were on the table. On the insistence of BMO Capital Markets, it became increasingly clear that being acquired was the most attractive option because of the significant number of financial institutions interested,” he says. “BMO Capital Markets looked at about half a dozen potential candidates, came up with a short list of three, and then we zeroed in on Mackenzie as the most attractive candidate going down the road.”

Dom Rando, vice-president of fund research for TD Wealth Management, says for Mackenzie to maximize value on the deal, it will likely want to retain both Howson and Tattersall for as long as possible. While they have committed to running the firm until 2010, Rando says it’s widely expected they’ll retire shortly thereafter.

“The key to this deal is whether Rick [Howson] and Bob [Tattersall] retire in 2010 as is widely expected,” he says. “These two guys possess the greatest intellectual capital and experience for the firm. Their likely departures would be materially negative for the transaction if it were to occur that way.”

Even if Howson and Tattersall do retire, Rando believes there is still considerable value for Mackenzie if it can leverage Saxon’s strategic alliance with MD Financial Group to expand its product offering and services to a mostly high-net-worth client base.

“Mackenzie has a pretty robust stable of funds as is. It will be important that Mackenzie taps into the exclusive strategic partnership that Saxon has with the health-care professional field, which tends to be high-net-worth,” he says. “The CMA, parent company of MD Financial, is a principal shareholder of Saxon, so they’ve supported the recommendation of the Saxon board [to accept the acquisition].”

Indeed, Sims says Mackenzie will be trying to expand its relationship with MD Financial Group.

“We’re looking forward to a long relationship with the MD Financial Group,” he says. “We hope it includes investment advisory services as well as some product innovation and development in addition to some access to Mackenzie funds on their channel, which they currently have available today.”

Filed by Mark Noble,, Advisor.ca, mark.noble@advisor.rogers.com

(08/05/08)