Dive Brief:

• BMO agreed to acquire Toronto-based Burgundy Asset Management in a C$625 million ($456 million) deal expected to close by the end of the year, the institutions announced Thursday.
• “In large part due to Burgundy’s success, we have found it more difficult than expected to transition ownership of Burgundy from the founders and current leadership to the next generation of our people,” Tony Arrell, a co-founder of the wealth manager, told clients Thursday in a note seen by The Globe and Mail.
• BMO will hold back C$125 million of the purchase price on the condition that Burgundy maintains a minimum threshold of assets under management for 18 months after the deal closes. Burgundy counted $27 billion in AUM as of May 31.

Dive Insight:

With the acquisition, BMO aims to boost its offerings that cater to high-net-worth and ultra-high-net-worth clients. After the transaction closes, Burgundy – which has 150 employees, along with offices in Toronto, Vancouver and Montreal – will operate as a part of BMO Wealth Management. Burgundy CEO Robert Sankey will continue to run the business. Arrell and fellow co-founder Richard Rooney will also remain with the business, BMO said.

"It has always been our intention to build Burgundy for the long run, so we can serve our clients and their families across generations," Arrell said in a press release.

“After long study and much discussion, we ultimately determined that joining BMO, the strongest possible partner, offered the best path forward,” he said in the note to clients.

BMO’s pending purchase of Burgundy arguably represents a turn toward its home country of Canada as a pillar of growth. Historically, the U.S. has been a target for growth among Canadian lenders, but relations between the two neighbors have soured amid President Donald Trump’s return to the White House, subsequent needling on tariffs, and persistent unsolicited comments that Canada should consider joining the U.S.

Another Canadian lender, TD, has been trimming its U.S. exposure – though that likely is in response to a $434 billion asset cap regulators have put on the bank’s U.S. retail business. The cap came in addition to more than $3 billion in penalties U.S. agencies handed the bank in October over deficiencies found in its money laundering safeguards. TD has since sold a $9 billion residential mortgage portfolio to Bank of America and signaled it would wind down a $3 billion portfolio tied to its U.S. point-of-sale financing business.

Otherwise, investment in the U.S. by Canadian lenders has been touted as a source of strength. BMO in 2023 bought San Francisco-based Bank of the West in a $16.3 billion deal. Scotiabank agreed last August to take a nearly 15% stake in Cleveland-based KeyBank. And Royal Bank of Canada last year chose its longtime co-head of U.S. investment banking to serve as the Toronto lender’s global head of investment banking – perhaps signaling the importance of the U.S. to the bank overall.

As it stands, more than half of Burgundy’s institutional client business comes from Canada, while 37% is in the U.S., according to the wealth manager’s website. BMO Wealth Management, meanwhile, derived 19% of its net revenue last year from the U.S., according to Bloomberg. The BMO arm counted C$438 billion under management as of April 30.

In a note to clients Thursday, Jefferies analyst John Aiken wrote that BMO’s “purchase price of 2.3% of assets under management represents reasonable value to expand [the bank’s] high-net-worth client base.”

Desjardins Securities analyst Doug Young said the deal aligns with BMO’s plan to attain a 15% return on equity in the medium term, saying the price was “in line with similar past transactions.”

In another add-on to the deal, an earn-out component may also be paid depending on whether Burgundy hits certain growth targets.

"Burgundy Asset Management is one of Canada's most respected independent investment managers known for its high calibre team, rigorous investment process and dedicated service to private clients, institutions and family offices," Deland Kamanga, group head of wealth management at BMO, said in Thursday’s release. "The acquisition will build on BMO's heritage as a client-focused wealth manager while expanding our wealth advice and private investment counsel offering."