The Desmarais clan is back in dealmaking mode. Only this time, it’s not simply to expand their empire — it’s to fix it.
Inside a narrow gray stone building just off Montreal’s main business district, the family and their key lieutenants are reshaping Power Corp. of Canada, the publicly traded holding company that’s the primary source of a fortune worth at least US$4.5 billion.
An appetite for M&A has been a part of the Desmarais formula ever since Paul Sr. began his business career by taking over, and turning around, a nearly-bankrupt bus line. In the 1970s, he became one of Canada’s leading men of finance after acquiring control of Power and using it to accumulate wealth, influence, and ownership stakes in some of the country’s most coveted asset management and insurance firms.
Investors and analysts can’t help but speculate whether, or when, a Desmarais will occupy the top job again. CEO succession is “a decision for the future” because Orr doesn’t plan on retiring soon, according to General Counsel Stephane Lemay. Paul III currently runs a fast-growing fintech unit of the company, while Olivier helms a sustainability venture. However, it would be a mistake to assume that a Desmarais will be the successor, Lemay told Bloomberg.
Both companies have faltered as the rise of passive investing hurt old-line asset managers offering traditional stock and bond portfolios at relatively high prices. At IGM, earnings grew an average of just 2 per cent a year over the past decade. Putnam, acquired for $3 billion in 2007 as a turnaround play after a mutual-fund scandal, went on to lose more assets.
The deal, which was done through IGM, underscored that, whatever their recent challenges, the Desmarais clan still travels in the gilded of circles in finance. Andre Desmarais had a close relationship with the late David Rockefeller Sr., who acted as a mentor, according to Rockefeller Capital CEO Greg Fleming.
Major policy decisions around Canada’s financial sector tended to go their way. In the 1990s and early 2000s, Canada’s largest banks made a push for mergers and liberalized rules that would make it easier for them to sell insurance through their branches. Their ambitions were mostly foiled in Ottawa, to the benefit of insurance companies such as Great-West. A freeze on mergers among Canada’s largest banks and life insurers has remained de facto government policy for more than 20 years.
“They’ve done a fair amount of work to try to unlock value, and the market is not giving them full credit for it,” Aiken said, though the discount has narrowed somewhat in recent years.
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