City National Corp. announced Friday that it intends to buy a privately held Chicago asset management company as part of a push outside its California base.
The Los Angeles banking company signed a definitive agreement to pay about $56.5 million in cash and assumed debt for Convergent Capital Management LLC, which has majority ownership in eight asset management firms and minority stakes in two others.
Four of Convergent Capital's affiliated firms are in California; the remaining six are in Illinois, Michigan, Texas, and Hawaii. The deal would nearly double City National's assets under management, to $13.9 billion.
Russell Goldsmith, City National's chief executive officer, said the deal for a firm that has assembled a group of affiliated asset managers in the Midwest would let his bank "accelerate the pace at which we take the next several steps in our long-established program to acquire outstanding external asset management firms."
The $11.9 billion-asset company has 55 offices but opened its first outside of California in December when it set up one in New York City. Mr. Goldsmith said the wealth management unit wants a wider geographic reach than the bank.
The wealth management unit already had some clients beyond California and New York, he said. It has developed a strong 401(k) business with law firms in Chicago and Washington, for instance, and has individual clients around the country.
This would be the company's 11th acquisition since 1995 and its third asset management deal in the past five years. In 1998, the company bought North American Trust Co. in San Diego, and in 2000 it purchased Reed, Conner & Birdwell, a Los Angeles asset manager.
The Convergent deal also would expand City National's investment products and services. Six Convergent affiliates are investment counselors for wealthy people, and the other four are institutional asset managers.
Jennifer Demba, an analyst at SunTrust Robinson Humphrey, said City National is closely eyeing asset management deals in other metropolitan areas. "They are not limiting themselves to any particular areas. I think, the closer to California, the better for them, but their goal is growth," she said.
Ms. Demba said the company has been looking to expand its asset management unit since fall. In December, it hired Shelley B. Thompson, a former U.S. Trust and Wells Fargo executive, to run its wealth management business. City National also named Vernon C. Kozlen to the newly created post of director of asset management development.
Mr. Kozlen, formerly the director of City National's investment management, trust, and securities brokerage division, was promoted to expand its relationships with affiliated, external investment management firms and to prospect for asset management deals.
Since Mr. Kozlen joined City National in 1996, it has tripled its assets under management, established an estate and financial planning group, started a family of proprietary funds, developed an internal team of investment advisers, and bought the two investment firms.
Ms. Demba said now is a good time to do asset management deals because prices are attractive. "Wealth management is a high-margin business, and they have substantially upgraded their business with this acquisition," she said. "It is a good time for the market. You can't get a better price. City National paid" 0.70% of Convergent's assets under management, she said, and in "last year's acquisitions, the price was" 2%. "Now is the time to be a buying."
The Convergent deal closing is expected in the second quarter. Mr. Goldsmith said no further deals are imminent.
