Canada’s second-biggest bank has agreed to acquire Cowen for $1.3 billion, in an all-cash deal which could see it become a serious competitor to RBC, the country’s current number one player.
The acquisition will see Cowen integrated into the group’s investment banking arm, TD Securities, as a new division called TD Cowen. It will be headed up by Cowen chairman and CEO Jeffrey Solomon, reporting to TD Securities president and CEO (and group head of wholesale banking) Riaz Ahmed. Cowen’s 1,700 employees will bring the combined entity up to a 6,500 headcount, across 40 cities.
“Cowen is a leading independent dealer with a premier US equities business and a strong, diversified investment bank that, when combined with TD Securities, will allow us to accelerate our strategic US growth plans,” said Bharat Masrani, group president and CEO of TD Bank Group.
“Most importantly, the acquisition will provide new capabilities and increased depth in key business lines to meet our clients’ needs and will allow us to leverage our combined expertise, talent, and integrated offerings across a much larger client base.”
The deal is expected to boost the new entity’s combined revenues by more than a third, to an estimated C$6.8 billion, as well as adding advisory, capital markets, equity execution and research capabilities to the TD toolchest. The research element is of particular value – Cowen is currently ranked in the top 10 research platforms in the US.
Expected to close in the first quarter of 2023, the agreement values Cowen at $39 per share and represents 1.7 times current book value as of Q1 2022. It is expected to incur integration costs of $450 million over three years, offset by expected revenue synergies of around $300-350 million. TD sold $1.9 billion-worth of its stake in The Charles Schwab Corporation to fund the transaction, reducing its holding from 13.4% to 12%.
The acquisition fills a gap in TD’s armoury, where it hopes to build out its capital markets business to better compete with RBC. Currently, wholesale banking revenues account for around 11% of TD’s total business, half that of RBC’s wholesale contribution. Cowen could be the ideal catalyst to boost these numbers – formerly a division of Societe Generale, the bank has been on a growth trajectory since its spin-off and public listing in 2006, delivering a 38% profit last year driven by investment banking and brokerage revenues.
“At Cowen our success comes from striving to outperform in all we do by exceeding expectations and providing innovative solutions to, and partnering with, our clients. Taking this step will make us even stronger and more effective in serving their growing needs,” said Solomon. “The strategic decisions and focused investments that we have made over the last few years have positioned Cowen for this exciting next chapter of our growth.”
The acquisition is the latest in a string of deals by TD to expand its operations into the US, driven partly by strict Canadian regulations that limit domestic mergers. Earlier this year, the bank entered into an agreement to buy Tennessee-based First Horizon Bank for $13.4 billion in a bid to break into the top six US retail banks, although doubts have since been raised as to whether the deal will close after US Senator Elizabeth Warren filed objections to the merger in June.