Royal Bank of Canada to acquire HSBC Canada for C$13.5B in cash

Royal Bank of Canada (RY) announced it has entered into an agreement to acquire HSBC Bank Canada (HSBC), a premier Canadian personal and commercial bank focused on globally connected clients. Under the terms of the agreement, RBC will acquire 100% of the common shares of HSBC Canada for an all-cash purchase price of C$13.5B. All of HSBC Canada’s earnings from June 30, 2022 through close will accrue to RBC. The purchase price represents a 9.4x multiple of HSBC Canada’s estimated 2024 adjusted earnings of C$1.4B, assuming fully realized expense synergies. On this basis, the acquisition is expected to be approximately 6% EPS accretive relative to 2024 consensus estimates for RBC7. This acquisition is expected to have an Internal Rate of Return of 14% and a marginal return on tangible common equity of 27%. RBC expects its CET1 ratio10 to exceed 11.5% upon close. RBC expects to achieve approximately C$740M, or 55%, in fully realized annual pre-tax expense synergies based on HSBC Canada’s estimated 2024 non-interest expense base, and incur total acquisition and integration costs of approximately C$1B. RBC will purchase all of the existing preferred shares and subordinated debt of HSBC Canada held directly or indirectly by HSBC Holdings plc at par value. Closing is expected by late 2023 subject to customary closing conditions including regulatory approvals, obtained in the ordinary course.