Hi. I'm Aaron Weinman. Toronto-Dominion Bank agreed to buy investment bank Cowen for $1.3 billion on Tuesday.
Let's understand how this deal underscores the Canadian bank's investment-banking ambitions in the US, and how it reflects the broader dealmaking market for financial institutions.
1. Toronto-Dominion Bank's $1.3 billion move for Cowen underscores that the Canadian lender wants more of the US investment-banking pie. The deal comes after TD agreed to buy Memphis-based First Horizon Corp. for $13.4 billion in February.
Cowen provides investment research and advisory services for M&A. TD will fund the acquisition from the $1.9 billion of proceeds it will receive from the sale of some of its stake in Charles Schwab.
TD also hopes to improve its share of business in the US capital markets by leveraging its balance sheet with Cowen's expertise in investment banking, one banker focused on M&A for financial institutions said.
While big-bank M&A is few and far between, there's room for smaller, strategic transactions like TD's move for Cowen. The small- to middle-market banking space in the US remains fragmented, and there's room for consolidation, according to Sid Khosla, a managing partner and M&A leader for financial services strategy at EY.
"There are adjacent areas where these banks may benefit from inorganic growth," Khosla said in regards to large lenders making acquisitions. "Not necessarily a scale play in consumer banking, but a play around another product set that can use the deposit base that these banks may have."
During Tuesday morning's conference call announcing the deal, Riaz Ahmed, TD Securities' group head for wholesale banking said one pressing question when determining an acquisition was finding a target with "complementary skills."
"It's difficult to time things exactly to where the markets are. When you have a long view of the business, then really what you're looking for is — can you find a party that has complementary skills, and then you worry less about the timing," Ahmed said in response to a question about why TD was making the purchase amid broader market volatility.
TD was advised by Perella Weinberg, and Simpson Thacher & Bartlett and Torys LLP were legal advisors. Ardea Partners and Perkins Advisors worked with Cowen, while Cravath, Swaine & Moore was its legal counsel.
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