(Bloomberg) -- Investors are reassessing CI Financial Corp.’s deal to sell a piece of its US wealth management business to a group of investors including Bain Capital LP and Abu Dhabi Investment Authority.

Shares of CI tumbled 17% on Friday, closing at C$12.76 in Toronto, a move that reversed almost all of the previous day’s gains. At one point on Thursday, the stock was as high as C$18.69 as the market responded enthusiastically to news of the transaction. 

Toronto-based CI said before markets opened on Thursday that it will receive $1 billion for a 20% stake in its US wealth division from the investor group, which also includes Ares Management Corp., Flexpoint Ford LLC and the state of Wisconsin. 

However, the deal is structured using convertible preferred stock in which the Bain group gets a guaranteed return — meaning it could become less attractive for CI than it initially seemed. 

CI’s plan is to take public the business, which provides investment and financial advice to wealthy individuals in dozens of offices across the US. If the IPO happens at a $10 billion valuation in the next three years, CI won’t be obligated to provide additional compensation to Bain and other investors, Barclays Plc analysts led by John Aiken said in a note. 

“However, if there is no liquidity event or one occurs at a lower valuation, CI will have an obligation to the preferred shareholders that is much higher than their original investment,” Aiken wrote.    

“The longer CI waits to IPO the business or provide a liquidity event for the preferred share investors, the more this instrument will cost,” he said. “We believe that some investors will chose to view this instrument as debt.”

The asset management firm plans to use the $1 billion to repay bonds and loans, allowing it to reduce its net leverage ratio to 2.7 times from 4 times. A spokesperson for CI didn’t immediately respond to request for comment.

--With assistance from Esteban Duarte.

©2023 Bloomberg L.P.