Hi. I am Aaron Weinman. Toronto-Dominion Bank agreed to buy an 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 United States and how it reflects the broader transaction market for financial institutions.
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1. Toronto-Dominion Bank $1.3 billion transfer for Cowen points out that the Canadian lender wants more of the pie from US investment banks. The deal comes after TD agreed to buy First Horizon Corp., based in Memphis. for $13.4 billion in February.
Cowen provides investment research and advisory services for mergers and acquisitions. TD will fund the acquisition from the $1.9 billion proceeds it will receive from the sale of a portion of its stake in Charles Schwab.
TD also hopes to improve its business share in U.S. capital markets by leveraging its balance sheet with Cowen’s expertise in investment banking, said a banker specializing in mergers and acquisitions for financial institutions.
While big bank mergers and acquisitions are rare, there is room for smaller, strategic deals like TD’s move to Cowen. The small and midsize banking space in the United States remains fragmented and there is room for consolidation, according to Sid Khosla, managing partner and head of mergers and acquisitions for financial services strategy at EY.
“There are adjacent areas where these banks can benefit from inorganic growth,” Khosla said of big lenders making acquisitions. “Not necessarily a game of scale in retail banking, but a game around another set of products that can utilize the deposit base these banks may have.”
During Tuesday morning’s conference call announcing the deal, Riaz Ahmed, group head for wholesale banking at TD Securities, said a pressing issue when determining an acquisition is finding a target. with “complementary skills”.
“It’s hard to time things exactly based on the markets. When you have a long-term view of the business, then what you’re really looking for is – can you find a part 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 served as legal counsel. Ardea Partners and Perkins Advisors worked with Cowen, while Cravath, Swaine & Moore acted as legal counsel.
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