TORONTO TMX Group Ltd (X.TO) will acquire Equity Financial Holdings Inc's (EQI.TO) transfer agent and corporate trust services business to broaden its portfolio of services, the Toronto Stock Exchange operator said on Wednesday.
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 advisory community.
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 acquisitions.
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 statement.
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.
(Reporting by Euan Rocha and Alastair Sharp; Editing by Lisa Von Ahn, John Wallace and Tim Dobbyn)