* Exchange operator says acquisition complements existing
* Deal could prove earnings-neutral, price looks steep
* TMX shares gain 1.4 pct, Equity Financial stock soars 25
TORONTO, Feb 13 TMX Group Ltd will
acquire Equity Financial Holdings Inc's transfer agent
and corporate trust services business to broaden its portfolio
of services, the Toronto Stock Exchange operator said on
The company said it would pay roughly $64 million for the
business, which primarily helps public companies keep track of
the owners of their stocks and bonds.
TMX shares ended up 1.4 percent at C$55.50, while Equity
Financial stock surged more than 25 percent to C$10.05.
TMX Chief Executive Tom Kloet said his company was well
positioned to build on the success of the Equity Financial
business, as the deal will allow it to build on its
relationships with listed entities and the capital markets
Paul Holden, an analyst at CIBC World Markets, described it
as a small bolt-on acquisition that fits well with their TMX's
existing business and should help it grow.
He estimates the deal could boost earnings by 2 percent in
the near term, or 6 cents a share, assuming the deal was
cash-only and the business earns C$3 million.
But National Bank Financial analyst Shubha Khan saw the deal
as earnings-neutral and said the price looked rich, at 38 times
average earnings for the past five years.
The move comes at a time when TMX, which is majority-owned
by a consortium of Canadian banks, insurers and pension funds,
is facing sluggish trading and listing activity.
The exchange operator earlier this month shied away from
talk that it would look beyond Canada for growth through
TMX, which also operates the TSX Venture Exchange for
small-capitalization stocks, the Montreal Exchange for
derivatives, and other markets, already offers clients a range
of services, such as investor relations and market analytics.
"With this acquisition we will further broaden our portfolio
of services and enhance the value we can deliver to public
companies," TMX's group head of equities, Kevan Cowan, said in a
Equity Financial, in a separate statement, said it decided
to sell the business so that it can focus on its rapidly growing
retail mortgage lending and deposit-taking operations.
"We have made the strategic decision to move exclusively
into the mortgage and deposit business and will now have the
necessary capital to invest in and support our new business
strategy," said Equity Financial CEO Paul Smith.
TMX said the business it is acquiring currently offers
services to 700 clients, most of them listed on the Toronto
Stock Exchange or TSX Venture Exchange.
The company expects the business, which was profitable and
generated revenue of C$17 million in 2012, to boost its earnings
in the first year following the close of the deal.
The transaction, expected close around the end of March or
in early April, is subject to some closing conditions, including
certain consents and an Equity Financial shareholder vote.