Citic Enters US With Brokerage Stake Buy
Financial conglomerate Citic Group is quickly emerging as a company to watch, as it consolidates its various domestic operations to assemble a compelling investment alternative to China’s stodgy state-run banks. But the company isn’t limiting itself to the domestic market, and has taken a new step onto the global stage through a new equity tie-up with US brokerage BTIG. (company announcement)
The deal looks particularly interesting because Citic isn’t doing it directly through its publicly traded Citic Securities (HKEx: 6030; Shanghai: 600300) unit, but instead is forming the tie-up using its recently acquired CLSA brokerage unit based out of Hong Kong. Industry watchers will recall that Citic Securities acquired CLSA in a 2-step process that saw it take a small stake and then eventually buy out the brokerage completely. If that pattern is any indicator, many may be wondering if Citic could follow the same pattern with BTIG, which is a mid-sized US brokerage that would be easily digestible by a big name like Citic.
Before we go any further, let’s zoom in on details from the latest deal that will see CLSA purchase a strategic stake in San Francisco-based BTIG, which has nearly 500 workers and specializes in trading for institutional investors. No details were given on the size or value of the stake, though I would guess the size is 20 percent or less and the price was probably $200 million or less.
The deal does look quite complementary, since CLSA’s strength is in Asia and BTIG is strong in North America. The new tie-up would become the second in North America this year for Citic, whose Citic Capital private equity arm in January took a major stake in a new hedge fund being set up in New York by executives from bankrupt former high-flyer FX Concepts. (previous post)
Citic is one of China’s oldest financial conglomerates, and despite its status as a state-owned company it has a distinctively entrepreneurial streak that makes it a bit more dynamic than most of the country’s other major financial firms. Citic Securities made headlines in 2012 when it purchased 20 percent of CLSA for $310 million, and then bought the brokerage outright a year later for another $900 million. I suspect we could see a similar pattern for BTIG if the initial partnership goes well, with a buy-out for the entire company coming as soon as next year.
This kind of deal looks like a smart approach for Citic, which is trying to craft a global expansion strategy as it embarks on a major overhaul in preparation for a Hong Kong listing of the entire group. As a Hong Kong-based company, CLSA is a good vehicle for such a global expansion, since it’s based in a global financial hub that’s also close enough to China for Citic to maintain contact and provide strategic assistance and guidance.
Following this move, I wouldn’t be surprised to see CLSA form a similar strategic tie-up with a mid-sized European brokerage over the next year or two. If Citic follows a similar approach in other financial areas, we could also see it try to purchase a Hong Kong-based bank or private equity firm, which could also become the foundation for similar global expansions.
All of this comes just 2 weeks after Citic Group reportedly received regulatory clearance for a backdoor listing in Hong Kong using its Citic Pacific (HKEx: 267) unit as the listing vehicle. (previous post) That deal would reportedly see Citic Pacific issue new shares to its parent to facilitate the backdoor listing, boosting the company’s market value about 6-fold from its current $6 billion to more than $36 billion. This BTIG purchase probably isn’t related to the bigger listing plan, but does reflect Citic’s broader ambitions to become China’s leading financial services firm both at home and abroad.
Bottom line: A new equity tie-up with a North American brokerage by CLSA marks the latest step in Citic’s global expansion, and could be followed by other similar purchases.
Related posts:
