IN A deal that makes absolutely no sense to me, TSX Group Inc. has acquired The Equicom Group Inc., a full-service Canadian investor relations and corporate communications firm.
Terms of the deal were not disclosed, but in a news release TSX Group, which operates the Toronto Stock Exchange and the TSX Venture Exchange, said the acquisition “is expected to be immediately accretive for TSX Group’s earnings.”
Founded in 1996, Equicom provides investor relations and corporate communications services to about 100 public companies. It employs 60 staff in offices in Toronto, Calgary and Montreal. Equicom’s revenue was more than $13 million for its last fiscal year.
Stock exchanges owning investor relations firms doesn’t make much sense to me. Why not simply negotiate discounts for issuers from a variety of service providers and give companies choice?
By owning IR firms, there is tacit pressure on issuers to use the exchange’s service provider. Companies may also perceive that they’re paying for or subsidizing the services through their listing fees. That will make them more likely to use the exchange’s IR firm, which in turn will hurt competition.
If I was with one of the smaller IR firms that operate in Canada, I’d be worried.
And if I was a regulator, I’d be worried, too. There’s a major difference between this deal and others, such as Nasdaq owning Shareholder.com and Prime Newswire. In Nasdaq’s case, its subsidiaries distribute or host information companies themselves are responsible for preparing.
However, Equicom is different. It is responsible for writing and advising companies on the content of their disclosures. Those same disclosures are subject to TSX regulation.
You can talk about Chinese Walls and “separate entities” all you want, it’s still a conflict. The fox is guarding the hen house.