BMO Financial Group announced that it has entered into a definitive agreement to acquire KGS-Alpha Capital Markets (KGS), a New York-based fixed income broker-dealer specializing in U.S. mortgage (MBS) and asset-backed securities (ABS) in the institutional investor market. The transaction is subject to receipt of required regulatory approvals and other customary conditions and is currently expected to close in BMO's fourth fiscal quarter. Terms were not disclosed.
Founded in 2010, KGS has built a reputation for providing institutional clients with innovative market-based structuring solutions and first-class client service. The company is a market leader in the structuring, trading and distribution in MBS and ABS product. KGS offers unique idea-driven and market-based structures to help clients manage their portfolios.
KGS has 135 employees, including 84 sales and trading professionals, concentrated in New York with seven other offices across the U.S.
The acquisition complements BMO Capital Markets' existing MBS trading business and immediately makes BMO a top tier dealer in securitized products with special emphasis on agency-backed residential and commercial MBS products.
"BMO has built a solid capital markets platform in the U.S.," said Pat Cronin, CEO, BMO Capital Markets. "The acquisition of KGS is highly complementary to our strategy, leverages our existing capabilities and allows us to better serve our clients. The size and scope of the MBS bond market represents a tremendous opportunity to continue to diversify our platform, and grow revenues with key new initiatives."
"KGS has developed a strong reputation with institutional investors by providing a differentiated value proposition through customized market-based solutions to manage risk," said Kelsey Gunderson, Managing Director and Head of Global Trading Products, BMO Capital Markets. "In making this acquisition, we are broadening our distribution and expanding our offering through proprietary manufacturing capabilities."
Upon closing, KGS-Alpha will be rebranded as BMO Capital Markets. The KGS management team, sales and trading professionals will become part of BMO Capital Markets' trading products group led by Mr. Gunderson. Corporate Support Area professionals will report to their respective areas within BMO.
"We are very excited to join BMO Capital Markets," said Levent Kahraman, CEO and Co-Founder, KGS. "BMO's strong brand recognition, balance sheet and culture of partnership will allow us to grow our business and enhance our capacity to service our clients."
The MBS bond market represents the second-largest U.S. fixed income securities market (behind U.S. Treasuries) with over $9.3 trillion in outstanding debt as of Q3 2017 and over $200 billion traded on a daily basis. KGS's inventory is about 96 per cent comprised of Agency (Fannie Mae, Ginnie Mae and Freddie Mac) MBS.
In connection with the transaction, BMO Capital Markets acted as financial advisor and Sullivan & Cromwell LLP and Osler, Hoskin & Harcourt LLP acted as legal counsel to BMO. Credit Suisse Securities (USA) LLC acted as financial advisor and Simpson Thacher & Bartlett LLP acted as legal counsel to KGS.