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Dain Rauscher cashes out
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September 28, 2000: 10:49 a.m. ET
Royal Bank of Canada buying U.S. investment firm for nearly $1.5
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NEW YORK (CNNfn) - Joining the rush to acquire U.S. investment banking capabilities, Royal Bank of Canada struck an agreement Thursday to acquire the brokerage firm Dain Rauscher Corp. for $1.46 billion cash, furthering its push to become an asset management leader for high net worth clients.
The transaction values Minneapolis-based Dain Rauscher, known primarily for its private client services aimed at wealthy individuals, at $95 per share, a 19 percent premium over its closing price of $79.87 Wednesday.
The combined organization will boast a heavy emphasis on wealth management, a stated goal of Royal Bank (RY: Research, Estimates), which has been looking for inroads into the U.S. market. Purchasing Dain Rauscher would give the Toronto-based company, Canada's largest commercial bank, access to roughly 1,200 private and institutional clients in 27 U.S. states.
Dain Rauscher (DRC: Research, Estimates), which will be renamed RC Dain Rauscher Wessels, also manages a group of proprietary mutual funds and is a top underwriter of network technology and energy initial public offerings, two of the hottest sectors in the IPO market in recent months.
 "Dain Rauscher will provide our global wealth management business with an established U.S. presence," Royal Bank Chairman and CEO John Cleghorn said. "It will also give our corporate and investment banking business a stronger origination and distribution capability, particularly in technology, energy and the health care sectors."
The acquisition follows a recent spate of mergers involving U.S. investment banks. J.P. Morgan (JPM: Research, Estimates), PaineWebber Group Inc. (PWJ: Research, Estimates), Wasserstein Perella & Co. and Donaldson, Lufkin & Jenrette (DLJ: Research, Estimates) are among those that have been bought out, primarily by overseas companies looking to establish a solid U.S. presence.
Royal Bank also had been eyeing the U.S. market for some time, looking for a sizable retail brokerage operation to go along with its corporate and investment banking arm, RBC Dominion Securities. It also views the United States as a critical component to its future growth, as Canadian regulatory authorities have balked at its Canadian expansion plans in recent years, fearing a concentration of banking powers.
"Dain Rauscher provides a solid wealth management presence in the United States, a recognized brand name and a proven management team," said Reay Mackay, chief executive of Royal Investment Services, Royal Bank's wealth management subsidiary. "Its retail brokerage operation is a critical step in building a strong wealth management platform, a key element in our global strategy."
Dain Rauscher has largely rebounded from its earnings woes of 1998, although profits tailed off somewhat during the 2000 second quarter under pressure from rising interest rates and a jittery stock market. Its private client group accounts for more than 60 percent of its more than $1 billion annual revenue.
Dain Rauscher shares soared $12.67 to $92.50 in mid-morning trading Thursday while Royal Bank shares shed 13 cents to $61.13. 
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