Wellington West sells small stake to National Bank

After searching for months, Wellington West Capital has found the backing it needs to pursue its aggressive growth strategy.

The Winnipeg-based full-service brokerage has signed a deal to sell 12.5% of the firm to National Bank Financial Group for $35.8 million ($54.40 per share).

Charlie Spiring, CEO and founder of Wellington West, says with the financial clout of one of the Big Six banks behind him, the firm has the ability to fund acquisitions up to $500 million.

An agreement for the first of those purchases has already been signed and will be announced before year-end, he says.

The National Bank Financial deal also calls for Wellington West to receive a further $35 million, or $53.10 per share, if it’s able to hit several revenue targets over the next three years.

Spiring says the sale of one-eighth of the privately held, 15-year-old firm is about “strengthening a great hand.”

“We were going into a poker game, and we wanted to make sure we had the best hand with deep pockets. We were strong before; we’re extraordinarily strong now,” he says, adding he shook hands on the deal in June but it took until now to finalize the details.

Spiring says the influx of capital relieves any pressure to resume its quest to take the company public. Wellington West had originally intended to launch its IPO sometime this year, but the idea was shelved because of unfavourable market conditions.

The partnership came as no surprise to Dan Richards, president of Strategic Imperatives, a Toronto-based consulting firm to the financial services industry. He says the word on the street was that the two parties had agreed to a deal a year ago but that it was derailed when the asset-backed commercial paper crisis in the U.S. emerged.

He says it makes sense for both sides.

“If you look at the current environment for Wellington West, even before the events of the last little while, it’s become tougher to succeed as an independent without access to a deeper-pocket source of financing,” he says.

At the same time, the deal enables National Bank Financial to continue bulking up in English Canada, Richards says. Earlier this year, the Montreal-based bank acquired Bieber Securities, also of Winnipeg.

Luc Paiement, National Bank Financial’s executive vice-president of wealth management, says its investment in Wellington West demonstrates its commitment to expand even during difficult times.

“We have tremendous respect for what Charlie has achieved in building one of Canada’s premier wealth management firms, and we have great confidence in Wellington West’s growth potential and leadership within the independent space,” he says.

Kish Kapoor, who was brought on as president of Wellington West less than two years ago to spearhead its growth, says he’s optimistic the heft of National Bank Financial will allow it to double its $10 billion in assets within three years.

“We have to move really fast if we want to take advantage of every opportunity in this down market. You have to be well capitalized to be able to recruit effectively and to acquire effectively. Unless we have the cash on deck, people that do are going to beat us in that race,” he says.

“In order to get the cash, we gave up 12.5% of our future to keep 87.5% of a much bigger pie.”

Kapoor says until now, Wellington West had been financed through operating cash flow and its employees. That was a good short-term fix, but it didn’t provide enough capital to execute its business plan in the long term, he says.

“If we didn’t have the right fuel, we’d just be another great story that didn’t live up to its potential,” he says, adding he is talking to more brokers about jumping to Wellington West than ever before.

Spiring adds he has no intention of selling off any more of the company unless all of the independent dealers suddenly come knocking at Wellington West’s door at once.

“We have a lot of security to do a lot of acquisitions. Unless something catastrophically good happens, we’re not going to be in the market for quite a while,” he says.

Spiring says Wellington West has been searching for a strategic partner since the Crocus Investment Fund ceased trading in December 2004. The now-defunct labour-sponsored fund used to own nine per cent of Wellington West’s shares, but the company bought the position back two years ago.

Wellington West has nearly 130 brokers in 30 offices across the country.

Renée Alexander is a freelance writer.

(09/22/08)