iA Financial Corporation Inc. (IAG) Earnings Call Transcript & Summary

Welcome to the iA Financial Group Conference Call regarding the acquisition of RF Capital. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Caroline Drouin, Head of Investor Relations for iA Financial Group. Please go ahead.

Good morning, everyone, [Foreign Language]. Thank you for joining today's call regarding the acquisition of RF Capital. This conference call is open to the financial community, the media and the public. There will be a question period at the end, and it is reserved for financial analysts. A recording of this call will be available for 1 week starting this afternoon. The archived webcast will be available for 90 days, and a transcript will be available on our website within the next week. Today's presentation materials are available in the Investor Relations section of our website at ia.ca. Now before we begin, I draw your attention to the forward-looking statement information on Slide 16 as well as the non-IFRS and additional financial measures information on Slide 15. So with that, I will now turn the call over to Denis Ricard, President and CEO.

Good morning, everyone. I'm very pleased today to announce that iA Financial Group has reached an agreement to acquire RF Capital, the publicly traded holding company of Richardson Wealth. Well, this acquisition marks a pivotal step in our strategic journey to expand and strengthen our position in the Canadian independent wealth management space. As you know, at the heart of iA Financial Group's business model, what we do is we build businesses with superior combined performance. This is how we've been consistently delivering superior returns to our shareholders over the years. Today's announcement perfectly fits our strategy and brings it in action. This transaction is fully aligned with our long-term strategy to drive scalable growth and distribution as outlined in our February 2025 investor event. Before we dive into the strategic rationale and benefits for RF Capital clients, shareholders and advisers, I'd like to extend a warm welcome to Dave Kelly, President and CEO of RF Capital Group, who joins us today. Also joining me on this call are Eric Jobin, Chief Financial Officer and Chief Actuary; Pierre Miron, Chief Growth Officer of all our Canadian operations; Stephan Bourbonnais, Executive Vice President of iA Wealth. Turning to Slide 3. RF Capital has more than $40 billion in assets under administration, bringing iA Wealth combined AUA to $175 billion. This positions iA as the #1 nonbank independent wealth manager in Canada. This acquisition accelerates our presence in the high net worth segment, and it increases iA's Wealth advisory network to over 2,750 partners across Canada. RF Capital clients will benefit from iA's scale advantage such as iA's Wealth and Insurance products and access to best-in-class managers. RF Capital Advisers will have access to -- yes, and very important, iA offers an unparalleled combination of financial strength and independence. At the core of this transaction is a robust cultural and operational alignment between iA and RF Capital, driven by a shared client-centric philosophy and an entrepreneurial spirit. At our February investor event, we affirmed our capability to support our ambition for sustained growth. By combining our strengths, we are well positioned to enhance service offerings, expand market reach and deliver greater value to our clients, ensuring sustainable growth that benefits all stakeholders. This strategic fit is not only complementary, it serves as a powerful driver for unlocking growth opportunities. Our teams have identified significant cost and revenue synergies, which Stephan will cover later. We anticipate that this transaction will be nearly neutral to core earnings in the first year and accretive in the second year. I will now turn it over to Eric, who will go over the transaction details. Eric?

Thank you, Denis, and good morning, everyone. So let's move to Slide 4, where we've highlighted the key aspects of this transaction. First, iA is offering $20 per share for RF Capital, including debt and preferred share redemptions, the purchase price is $597 million. This represents an initial EBITDA multiple of 11.3x and a fully synergized EBITDA of 6.7x the EBITDA. This is an all-cash offer, which will be financed using cash in hand. I would like to point out that adviser retention is a priority, and we have a robust retention strategy in place to maintain and grow our national network of entrepreneurial advisers. Richardson Wealth will continue to operate independently within iA Wealth, retaining its brand and employees. We've secured rights to the Richardson Wealth name for 30 months, ensuring a seamless transition with no repapering required. The transaction is subject to shareholder and regulatory approvals with closing anticipated by year-end 2025. I now will ask Dave Kelly to tell us more about this great company that is RF Capital.

Thank you, Eric. Good morning, everyone. I'm excited to be involved in this transaction and to contribute to this important milestone. I'll provide a brief overview of our company, but I'm particularly optimistic about the strategic alignment and synergies, which Stephan will elaborate on shortly. Richardson Wealth is one of the largest independent wealth management firms in Canada with $40 billion in AUA. Slide 5 highlights RF Capital's national footprint with 189 advisers across 23 offices and a strong focus on high net worth clients. It's a storied business with roots dating back to the founding of the Richardson Business Group almost 100 years ago. With a focus on high net worth clients, Richardson Wealth is known for its high-touch client experience and most of its AUA is discretionary with over 90% of the revenues fee-based and recurring in nature. And now Stephan will walk us through the strategic fit between iA and RF Capital and tell you about the synergy opportunities.

Thank you, Dave. Great overview, and good morning, everyone. So if we move to Slide 6, please. It highlights our leading position amongst select nonbank wealth management firm in Canada, and we're using the measure of assets under administration AUA for this graph. So with the addition of Richardson Wealth, we're not just growing, we are taking the lead. This acquisition will boost our assets under administration from $135 billion between iA Private Wealth and Investia to $175 billion. So the addition of RF Capital strengthens iA Wealth's position as the leading nonbank wealth platform in Canada, offering additional reach in the independent full-service brokerage space. And this added scale and depth of our offering will position our business for accelerated growth. On Slide 7, here, we focus on distribution, and we know that scale is very important in our industry. This slide was originally presented at our February investor event. If we want to move to the next slide -- a bit of delay here. So the slide will highlight the iA extensive national distribution network. So by adding Richardson Wealth Adviser network, we solidify our status as a national distribution powerhouse in Canada. Post transaction, as Denis mentioned, we will have over 2,750 independent advisers with strong community ties across Canada. And as you can see, Richardson Wealth advisory network complements our existing network, increasing our AUA outside of Ontario and Quebec by 47%. Now at Slide 8, it illustrates our 3 complementary business model. We currently operate under 2 independent advisory models. On the left side, you have Investia, MFDA dealer with $70 billion in assets under administration, in the middle, our iA Private Wealth full-service brokerage business with $65 billion in AUA and now the addition of Richardson Wealth corporate partnership structure will be highly complementary, providing advisers with greater flexibility to choose the business model that best suits their needs. And I want to be clear, all 3 models will be separate and distinct business units within iA Wealth. So we're not merging Richardson Wealth. We're going to leverage the corporate partnership model, which will remain intact. And the intention that we have here is to grow all 3 lines of business as each caters to advisers with different preferences and needs. Let's now move to Slide 9. As Denis highlighted earlier, there is a strong robust cultural and operational alignment between iA and RF Capital. Therefore, it's no surprise that this transaction will unlock significant synergy opportunities, both in terms of revenue and savings with most expected to be realized over the next 3 years. On this page, we have listed for you some of the key synergies. On the revenue side, you have 3 complementary business model that will be enhancing the appeal to potential recruits and accelerate our advisory network growth. So it's going to be your business, your way, and it's going to help us attract, retain and on our succession plan with our advisers. The combined open architecture platform will create synergies across wealth management, capital market insurance and advisory services, accelerating our respective road map and unlocking greater opportunity for all of our businesses. And our geographic growth strategy is creating synergies through additional complementary regional offices, driving our strong organic growth that's driven by our entrepreneurial advisers acting as the backbone of our organic growth strategy. On the cost synergy, there's a strong alignment in terms of strategic priorities between the 2 dealers and very little overlap, but very much complementary. So some of the opportunities that we've identified is with third-party provider consolidation, streamlining procurement and shared services. On the corporate function side, integration to drive better operational alignment, increased flexibility, improve administrative efficiency and synergies from no longer operating as a stand-alone public company. And last but not least, on the technology side, AI capabilities and digital platform alignment, which will boost our scalability, innovation and improve adviser and client experience. And on that, I will turn it over to Eric Jobin to walk us through the financials.

Turning to Slide 10. The acquisition of RF Capital is a strategic move that will drive shareholder value. Let me summarize for you the key financial figures. First, the purchase price of this acquisition is $597 million, which mark a positive step forward in our prudent and disciplined capital deployment strategy. This represents a multiple of 1.5% of RF Capital AUA as at June 30, 2025. As I mentioned earlier, this transaction represents a 6.7x last 12-month fully synergized EBITDA at March 31, 2025. $60 million is expected for the transaction and integration cost before tax. The transaction will be neutral to core earnings in the first year and accretive by $0.15 and more to core earnings starting in the second year. We have consistently exercised discipline and prudence in our capital deployment. As such, we will continue to maintain a strong balance sheet. The impact of this transaction on our solvency ratio is approximately 6%, and we deploy the equivalent of $600 million of capital available for deployment. Please note that the cost of implementing our retention adviser strategy, which will be deployed at a later stage, will be accounted for separately. I will now hand it back to Denis for the closing remarks.

Thank you, Eric. On Slide 11, it is a strong reminder of the growth strategy we shared at our investor event earlier this year. And at this call, the iA way is a compelling and winning value proposition for both advisers and clients. The acquisition of RF Capital is a natural extension of this strategy, reinforcing every pillar of our approach. The 5 key pillars that underpin our approach are described on this page. First, focus on organic growth driven by our entrepreneurial adviser acting as the backbone of our organic growth strategy. Second, foster adviser retention by enhancing our value proposition. We continue to invest in tools, platforms and support systems that enhance the adviser experience. These investments are essential to retaining talented advisers. Third, leverage our unique positioning to attract business-minded advisers. Our positioning in the market is resonating. We are attracting advisers who are aligned with our growth momentum and who see the value of our integrated model. Fourth, on the manufacturing side, we are committed to expanding and diversifying our asset management capabilities. And lastly, five, seek acquisition opportunities in distribution and asset management. The RF Capital transaction is a clear example of how we are executing on this pillar. It accelerates our strategy and delivers on the road map we shared with you in February. Lastly, on Slide 12, I would like to leave you with the following takeaways for what we have discussed today. First, the addition of RF Capital position iA as a leader in the nonbank independent wealth space in Canada. It was clearly demonstrated in a slide presented earlier by Stephan. Second, RF Capital and iA have complementary business models, adding to our platform in the large and fast-growing high net worth market segment. Finally, this transaction is aligned with our long-term strategy to drive scalable growth in distribution, an area that we have been consistently focused on for many years. This concludes our prepared remarks. We'll now open the line for your questions.

[Operator Instructions] The first question is from Gabriel Dechaine from National Bank.

Can I get a couple of basic questions out of the way first? So your synergies, are those mostly cost synergies from third-party suppliers and stuff like that?

Yes, it's Denis here. I think I'm going to leave Stephan and also Pierre, if you want to add on the technology side to explain a bit more in detail, if you want, the synergies because this is a very important aspect of this transaction. So go ahead, please.

Gabriel, I'll take -- I'll start yet and I'll start with it. This is Stephan. So on the synergy side, I think we're putting a weight about equal weight between the revenue side and the expense side. As we mentioned, on the expense side, there is an opportunity with vendors as this industry -- most vendors are common between different dealers. So we think there's going to be an opportunity to streamline and consolidate things. And on the technology side, considering the road map on which and priorities on with Richardson Wealth was on and considering the work that we've been doing over the last 3 years, we see a huge opportunity to leverage some of the things that we've done and accelerate their transformation. So this is really where it's going to be coming from in the next 3 years.

If I may add on this, if you remember, when we did this Investor Day, we talked a lot about our digital journey. And the thing that is very positive on this one is the fact that RF Financial Group will benefit from these investments that we have made so far, and they are counting on us to continue on that journey. And like Stephan said, we have the scale now to go a little bit further than that. So let's call that day 1 and day 2. On day 2, by keeping the 3 independent model that Stephan presented, we will be looking at other synergies in terms of administrative work and everything else. So more to come on this one.

Okay. And my last 2, if you don't mind, more strategic in nature. So RF Capital, Old Richardson used to be owned by GMP back in the day, but very high net worth wealth management adviser business. How does that fit into what you've got like with Investia, the old Cartier business you bought years ago? Does it matter? I mean it seems like they're fairly distinct businesses.

Maybe, Stephan, you want to go ahead on that?

Yes. I think where we showed the slide where there's a 3 distinct line of business, that's the point, right? We want to keep 3 different brands. We want to keep 3 distinct offerings to make sure that if an adviser is thinking, I want to go independent, they are able to come to us and we'll sit down with them to see which model fits best for their needs and what they want to accomplish, right? So at the heart of everything that we do, our values are there, our beliefs are there about the independent and how we will do it, and we've got the support of iA to make sure we're providing that support to our advisers and clients. And after that, in terms of your day-to-day and where do you want to be sitting and where do you want to -- and how you want to operate your business, you'll have 3 channels to decide and pick the one that best suits where you want to go. So we think it...

One thing I would like to add, sorry, Gabriel, is that in terms of strategy and strategic fit, and you've seen it through the history of iA over the last, let's say, 3 or 4 decades, we have broadened the distribution scope with different networks and different, let's say, term markets and here, we are in a situation where we were -- we are very, very strong on the mass market, the mid-market. And even we had started on the high net worth market. And now we are really solidifying our market presence in that market because, as you know, a large proportion of the wealth in Canada is within that market.

Yes. No, I get that. Last one, and this is maybe probably far down the road, but your pie chart that showed the wealth -- the revenue split of the business, interest is fairly small. So a lot of the money made in these advisory-type businesses is on deposits. I'm wondering if there's any thought into the future of some sort of arrangement with a bank or setting up your own thing and creating some deposit gathering capabilities to earn some of that margin type thing?

Yes. The only thing I'm going to say on this is that it's already being provided in the plan that we've set for Richardson within the iA, let's say, family. So you should just keep in mind that we already took care of that.

The next question is from Lemar Persaud from Cormark.

I'm wondering if you could talk about whether or not this was a competitive process and provide some color on how this deal came about because there was at least kind of one other bid that didn't materialize in the sale of RF? So I wonder if you could address that.

I think I'm going to keep it very short. It's Denis here. There's going to be details that will be provided in the document that will be sent to the shareholders of RF for -- because the shareholders have to vote on this transaction. So you'll see a bit more details on that document. So at this point, I don't have more details to provide to the market.

Okay. And then just you guys mentioned that equal weight on the synergies, revenue and expense side. So -- and I heard you guys talk about the expense side. Can you talk about the revenue side and where the bulk of that is going to come from? I know you identified a couple of areas in your slide here, but I wonder if you could just expand on that piece.

Yes. Gabriel already mentioned one of them. Maybe you want to complement -- I don't know if it's Eric or Stephan at this point. Maybe Stephan, you can go ahead.

Yes, I could take it. I think one of the things that we see is the combined open architecture platform synergies that we will have. So if you think from a product support, I mean, I think there's a lot of things about iA that Dave and the team have on their list that they wanted to build, and we already add it, right? So we're going to be able to leverage the expertise that we have internally with some product platform and solutions that we have, combined with the ones that are already at Richardson Wealth. I could think of the UMA, for example, where we've been able to have preferred pricing with some other partners that are on our platform, and we'll be able to combine that. I think capital market will be a huge opportunity, insurance advisory services. So we are very excited about adding and bringing upfront what we have to the Richardson Group. And I think this was a gap in our offering. I think from a recruiting perspective, when I look on our side, because of our highly independent model and offering corporate offices, it was a bit of a challenge to recruit bank advisers that were looking maybe for more of an assisted model. And that model will now be available through the Richardson. So we think -- well, so this is going to be accelerating our recruiting opportunities and some of the discussions we've had with prospects. So I would say those are the 2 main opportunities that we see that we're going to be able to quickly leverage in terms of revenue growth.

Okay. And final one for me and kind of just sticking on this synergy side. Can you talk a bit about the timing of these synergies just for modeling purposes?

It's going to be fully realized over the next 5 years, most of it, let's say, after 3 years.

The next question is from Tom MacKinnon from BMO Capital.

Maybe you can share with us -- you've made other acquisitions in wealth management in the past, thinking a high net worth one might have been [Jovian]. Maybe you can share with us what you're looking for with respect to that in terms of cost and revenue synergies maybe what your retention was there, just so we can have a little bit of a gauge here as to your past performance in that?

Yes, I'm going to start, and I don't know if maybe, Stephan, you would like to add on after that. Yes, I mean, adviser retention is a very key important assumption here with Ally's Wealth. I remember that we had an assumption, and we were quite pleased with the results afterwards. And obviously, we know how to do that. We know how to manage distribution. We knew what it takes to retain advisers, and this is really a key part of the strategy to make this deal profitable over the years. So I mean -- yes, I mean, we know how to manage the distribution. And I don't know, Stephan, anything you want to add on this?

Yes. Denis, I would add, I mean, obviously, each transaction is different. As you mentioned, I think we're known to be great integrators and operators. I think with this transaction, again, it was highlighted that we want to keep the business distinct. And this is key, right? So we're not merging this business with another business that we have. And we wanted to make this as seamless as possible for the advisers and for clients. So the good news about how we're going to do it is they're going to retain their platform. Their platform will remain the same. The office will remain the same. The brand will remain the same. The relationship that they have with their branch manager will remain the same. So we're not creating any disruption for them. We're not creating any repapering and I see it as being all upside. So it's always going to be the same thing. We need to be visual. We need to tell our story. And we're hitting the road as of today, Dave Kelly and I to make sure that we're going to be meeting with the advisers in our offices and sitting down with them one-on-one and telling them their story and show them how we think this partnership will go down the road.

Can you share with us the dollar amount of the synergies for both revenue and expenses separately?

You can do the math with Eric's comments when he provided you with the multiple of EBITDA currently and post, let's say, fully synergized, those information are already available in the market.

Sure. And the leverage, 14.8% when you're taking on this additional debt, what does this leverage move to? And I assume your deployable capital of whatever, $1.4 billion is going to fall by $600 million. But if you can just -- the pieces of this.

I don't know, Eric, if you have the leverage ratio post, but regarding the capital for deployment, obviously, you know that we are going to disclose our results very soon. So you get the update. But for this transaction, for this call, I guess, what we decided is to tell you the marginal impact of the transaction, and you'll get an update, including the addition of the last issuance in a couple of weeks. I think, do we have the leverage post?

No, Denis, we don't have yet at this time.

We can follow up.

The next question is from Mario Mendonca from TD Securities.