Canaccord's very successful acquisition and integration of Genuity Capital Markets in early fiscal 2011 created the gold standard independent investment bank. Our collective operations, rebranded Canaccord Genuity on May 10, 2010, united Canaccord's leadership in equity financing with Genuity's deep advisory expertise to form a comprehensive, global platform that serves the entire client lifecycle. With this broader skill set, expanded sector coverage and growing diversification by geography and market cap, our clients are already seeing the benefits we knew our combination could provide. And we're just beginning to realize the earnings power we knew was possible.
Fiscal 2011 proved to be an exceptional year for Canaccord Genuity. With record revenue from advisory fees, investment banking activities and trading commissions, Canaccord Genuity achieved its best-ever financial performance, despite unfavourable market conditions during much of the first half of the fiscal year. It's a testament to the quality of our employees and their ability to generate value for our clients in all market conditions.
(Fiscal 2011)
Canaccord Genuity Revenue (C$ millions)
The fiscal year was characterized by two distinct halves for Canaccord's capital market operations. The first was built around the acquisition of Genuity Capital Markets, which was a key transaction in our long-term strategy to add depth and breadth to the value proposition we can offer to clients in our core markets. We completed the acquisition on April 23, 2010 and fully integrated and rebranded our operations as Canaccord Genuity on May 10, 2010. As market instability and uncertainty related to economic recovery reduced client activity for much of the first half of the fiscal year, we used that time to align our newly expanded capabilities and better understand how we could best serve our growing client base.
A resurgence in client activity during the second half of the fiscal year produced record revenue levels across our capital markets divisions and demonstrated the real leverage and earnings potential of Canaccord Genuity. By combining our long-established global platform, proven equity underwriting and distribution strength, with a wider breadth of top-rated research and robust advisory and restructuring capabilities, more clients are finding more value in Canaccord Genuity's enhanced capabilities than ever before.
As fiscal 2011 proved, our new competitive strength is more than the sum of its parts. In fact, our enhanced execution capabilities and growing client relationships are driving many new opportunities for Canaccord Genuity. Whether we're leading or advising transactions that we would not have before, or gaining trading market share, it's clear that our clients recognize the quality of our ideas, our ability to see opportunity and our commitment to working with them to accomplish all their investment banking needs.
The power of Canaccord Genuity’s global capabilities was evident in the division’s improving performance throughout the fiscal year. As we completed the integration of Genuity and focused on our growing client base, the outstanding results we generated in fiscal 2011 demonstrated the earnings power we knew we could achieve.
Canaccord Genuity generated record revenue of $538.6 million during fiscal 2011, a 48% increase compared to fiscal 2010 and 20% higher than our previous record in fiscal 2007. This tremendous result was due largely to revenue growth from our Canadian operations, but was also buoyed by record performance from our US operations and a solid result from our UK business. What’s more, the revenue contribution from all of our capital markets activities speaks to the broad strengths of Canaccord Genuity’s services and global platform. Investment banking revenue rose 50% compared to last year to a record $271.8 million. Advisory fee revenue increased 116% to $84.5 million, while commission revenue increased 30% to $133.8 million.
Client activity picked up dramatically in the second half of our fiscal year, as the health of equity markets returned and companies acted on opportunities to refinance and grow. Revenue flows reflect this increase in activity, with more than 63% of Canaccord Genuity revenue generated in the second half of the fiscal year. And while many investment banks benefited from the improved market conditions, we were particularly pleased with our market position and sector strength, which we were able to leverage into market share gains on several fronts.
Our ongoing commitment to cost containment continues to enhance the efficiency of Canaccord Genuity. Fiscal 2011’s lower expense ratios made a meaningful contribution to improving the operating margins of the division. In the last two quarters of fiscal 2011, pre-tax margins for Canaccord Genuity increased to more than 31%, significantly higher than it’s ever been and an indication of how we’re generating more value for our shareholders.
Earnings from Canaccord Genuity continue to drive a significant portion of Canaccord Financial’s performance. Canaccord Genuity accounted for $134.3 million, or 96%, of Canaccord Financial’s operating income during fiscal 2011.
(1) Compared to fiscal 2010.
| (Calendar 2010, in US$ billions) | |||
| 1 | JPMorgan Chase | $ | 1.61 |
| 2 | Goldman Sachs | $ | 1.57 |
| 3 | Morgan Stanley | $ | 1.51 |
| 4 | Bank of America Merrill Lynch | $ | 1.08 |
| 5 | UBS | $ | 1.04 |
| 6 | Nomura Holdings | $ | 0.94 |
| 7 | Credit Suisse | $ | 0.92 |
| 8 | Deutsche Bank | $ | 0.90 |
| 9 | Citigroup | $ | 0.78 |
| 10 | Barclays Capital | $ | 0.56 |
| 11 | Wells Fargo | $ | 0.32 |
| 12 | RBC Capital Markets | $ | 0.26 |
| 13 | Mizuho Financial Group | $ | 0.25 |
| 14 | Macquarie | $ | 0.20 |
| 15 | Jefferies | $ | 0.18 |
| 16 | GMP Securities | $ | 0.15 |
| 17 | Canaccord Genuity | $ | 0.14 |
| 18 | BMO Capital Markets | $ | 0.14 |
| 19 | CIBC World Markets | $ | 0.14 |
| 20 | HSBC Holdings | $ | 0.12 |
Source: Bloomberg Markets
On January 17, 2011, we expanded our capital markets operations in China with the launch of Canaccord Genuity Asia. With over 40 employees based in four offices in China, we now bring a thorough understanding of local markets to the proven strengths of our global platform. To fully engage the expertise and networks of our global team, several Canaccord Genuity investment bankers and research analysts from North American offices have relocated to Beijing, facilitating business continuity and building even more prospects for Canaccord’s cross-border relationships.
Continued strong demand for commodities, coupled with our established expertise in high-growth sectors that are of interest to Chinese businesses, government agencies and international investors – specifically mining, energy, life sciences and clean technologies – suggests that there is significant growth opportunity for Canaccord Genuity in the region. While it’s still very early in our Asia strategy, we are pleased with how the integration has progressed and optimistic about the opportunities this expansion will provide to clients and shareholders in the future. Perhaps just as important, we’re pleased with the ways in which our Asia initiative is beginning to expand the opportunities and value we can provide existing clients within our established markets.
The creation of Canaccord Genuity Asia brings us another experienced team of investment banking professionals, and adds offices in Beijing, Shanghai, Wuhan and Hangzhou to those of Canaccord Genuity in Canada, the US, and the UK. Our Investment Banking team now numbers more than 150 senior professionals, with deep industry knowledge and strong ties to critical growth sectors of the global economy. Together, they represent proven independent expertise and experience in corporate finance, mergers and acquisitions, and financial restructuring, with the value of a global distribution platform and direct access to institutional investors around the world.
We continue to diversify the capabilities of our strong banking platform. With the launch of our operations in Asia, as well as the resurgence of growth in emerging economies, Canaccord Genuity is operating in more geographies than ever before. Many of the 138 transactions we led or co-led during fiscal 2011 had a cross-border component, and in the past five years we have developed experience in more than 70 countries on behalf of our clients.
The growing value of our global platform was showcased this year, as Canaccord Genuity broke into the top 20 investment banks worldwide based on the value of all equity underwriting fees.(1) We not only advanced 15 places to rank 17th, we also outranked several well-known bank-owned investment dealers. It speaks to the power of Canaccord Genuity’s growing team, and the success of our strategy. By focusing on small to mid-cap corporate clients, and continuing to cater to these companies’ needs as they grow and mature, Canaccord Genuity is able to maintain strong client relationships throughout their entire corporate lifecycle and successfully compete with far larger investment banks.
During fiscal 2011 we also broadened our sector coverage substantially, adding many new sectors through our acquisition of Genuity including Agriculture and Transportation, and growing others such as Financials and Technology. And in the US, we added senior bankers specializing in the Consumer Products, Life Sciences, Cleantech and Sustainability sectors. In the past three years, we have invested aggressively in building our capabilities in these verticals, and the results are notable. During calendar 2010, we participated in more Life Sciences and medical technology transactions in the US than any other investment bank – firmly establishing Canaccord Genuity as a recognized leader in these important growth sectors.
This growing diversity complements the continued and substantial opportunity we have to leverage our traditional expertise in the resource sector. In fact, during fiscal 2011, approximately half of the transactions Canaccord Genuity completed were in non-resource sectors like Life Sciences and Cleantech. And while we continue to provide best-in-class service to the small to mid-cap market, we are now serving more-established large-cap companies such as Air Canada – highlighting the skills and relationships of the new Canaccord Genuity team.
The most marked change in Canaccord Genuity’s operations during fiscal 2011 was the significant expansion of our M&A and advisory capabilities, and the resulting record advisory fee revenue we achieved during the year. Much of this increase can be attributed to the strength and experience of our expanded capital markets team and the deep-rooted client relationships we gained through the acquisition in April. As an advisor to 39 M&A and restructuring transactions during fiscal 2011, we achieved the Company’s best year for this segment. Perhaps more importantly, it is an early indication of what we can achieve by furthering our relationships with corporate clients and finding opportunities for them as they expand and grow.
(1) Bloomberg data and rankings.
Highlights of the 138 transactions Canaccord Genuity led or co-led
(1) Led or co-led during fiscal 2011.
Highlights of the 39 transactions on which Canaccord Genuity was a principal advisor
(1) Compared to fiscal 2010.
Canaccord Genuity’s ability to generate in-depth and timely ideas is integral to our success. Moreover, our clients depend on Canaccord Genuity because our research is independent and global. Over 100 research professionals follow more than 750 companies in 16 focus sectors from offices across North America, the UK and China.
The quality of our research coverage was clear in the 2010 Brendan Wood International Canadian Capital Markets Survey of equity analysts. Canaccord Genuity was ranked the top independent provider of equity research in Canada, first among all Canadian investment banks for the quality of our investment ideas and first for the quality of small-cap research. Companies also voted Canaccord Genuity analysts first for who understands their business best. And five of our Canadian analysts also received top-three rankings for their specific sector coverage. We’re having similar success in the US and UK. Three of Canaccord Genuity’s US-based analysts received top-two rankings in their respective sectors by the Wall Street Journal. And in the UK our analysts have received wide-ranging recognition from the Financial Times and StarMine, including best metals and mining stock picker, best technology stock picker, best earnings estimator for financial services, and second place for selecting stocks in all sectors.(1)
We are continually adding to the value we can offer institutional and individual clients through our global perspective and proprietary investment opinions. Our expanded Canaccord Genuity team now provides top-ranked research coverage of the Transportation, Financial and Telecommunications sectors in addition to our well-established expertise in Mining, Energy, Sustainability and Life Sciences. During fiscal 2011, we also bolstered our research coverage of wireless and internet technologies with the addition of several highly ranked analysts in the US and Canada.
Canaccord Genuity’s 30th Annual Growth Conference was held in Boston on August 9–11, 2010, and was our most successful conference ever. This premier event provides institutional investors with highly actionable opportunities from nearly 300 small to mid-cap growth companies from the US, Canada and the UK. Our teams facilitated nearly 600 investment banking meetings and more than 3,000 individual meetings with institutional clients, which speaks to the quality of our coverage and our ability to identify targeted opportunities for investors.
(1) Financial Times and StarMine. Top Analysts of 2010 for the United Kingdom and Ireland.
The integration of the Canaccord Genuity sales and trading desks, the strength of our combined relationships with institutional investors and several years of investment in building our capabilities in Canada, the US and the UK drove strong sales and trading market share gains during fiscal 2011.
In Canada, the Canaccord Genuity sales and trading team increased their block trading market share on the TSX by 40% to 5.1% of total trading volume. And on the TSX Venture, a traditionally strong market for Canaccord Genuity, our team captured 13.4% of trading volume, finishing the year with 15.3% market share during our fiscal fourth quarter. We’re also making great advances in the US and UK. Our US trading desks grew their agency business by 10% during a year when many industry participants experienced lower trading volumes. And in the UK, Canaccord Genuity holds the largest market share on AIM of all investment banks, averaging 6% based on total trading value during fiscal 2011.
Whether we work with long-only accounts or alternative asset managers, Canaccord Genuity is passionate about ensuring that institutional clients receive high-quality investment and trading ideas. Our sales team is specialized by both geography and industry, and we are active participants on seven global exchanges from our eight international trading floors. Our skilled team of 115 sales and trading professionals facilitate timely execution of both high-volume, large-capitalization names and less liquid, emerging companies, managing the potential impact of each transaction.
Globally, we make a market in over 2,300 stocks on seven exchanges, with expertise that ranges from NASDAQ listings in the US to investment trusts in the UK. Our ability to leverage Canaccord Wealth Management’s strong distribution network also provides greater distribution opportunities for our institutional and corporate clients.