Founders retain minority stakes as Brookfield enters non-bank lending with First National acquisition
Brookfield Asset Management and Birch Hill Equity Partners are set to take a controlling stake in one of Canada’s largest non-bank mortgage originators, First National Financial Corp., in a $2.9bn deal, according to Financial Post.
As reported by Bloomberg, Brookfield and Birch Hill will pay $48 per share in cash, a 13 percent premium to the previous Friday’s closing price.
First National stated the offer represents a 15.2 percent premium over the 30-day trading average and a 22.8 percent premium over the 90-day volume-weighted average.
The purchase follows a strategic review by First National that, according to a National Bank of Canada analyst note cited in Financial Post, led to “several acquisition proposals that fell below the Birch Hill and Brookfield offer.”
Upon closing—expected in the fourth quarter—Brookfield and Birch Hill will own about 62 percent of First National.
Founders Stephen Smith and Moray Tawse, who currently control 71 percent of the company through stakes of 37.4 percent and 34 percent respectively, will each retain a 19 percent indirect interest, as per CTV News.
Brookfield said in a statement that the acquisition supports its strategy to expand in non-bank mortgage segments of private credit, building on its 2019 and 2020 acquisition of Genworth MI Canada, now operating as Sagen Mortgage Insurance Co. Canada.
Brookfield has also recently moved into the US mortgage market, acquiring New York-based Angel Oak Cos. LP, which it said had originated more than US$30bn in loans and completed over 60 securitizations in the past decade.
First National originates and services primarily prime residential and commercial mortgages, including single-family and multi-unit properties. The company funds these loans through institutional investors and works with independent mortgage brokers.
It reported having $153.7bn in mortgages under administration and about 325,000 clients at the end of last year, according to CTV News.
Jason Ellis, who will remain chief executive officer, said in a statement that “Birch Hill and Brookfield bring significant expertise in the Canadian financial services industry, and we are excited to partner with them.”
The current leadership team is expected to remain in place after the transaction.
Brookfield’s credit division, which manages over $300bn in global assets, includes partnerships with Oaktree Capital Management and 17Capital and invests across infrastructure, renewables, real estate, and corporate credit.
As per National Bank of Canada analyst Jaeme Gloyn, “generally, Brookfield seeks to leverage the ecosystem to drive upside for any of their portfolio companies.”
Gloyn added that despite Brookfield owning both Sagen and now taking a majority stake in First National, integration between mortgage lending and insurance may be limited.
He pointed out that Smith is also an owner of Canada Guaranty Mortgage Insurance Co., which competes directly with Sagen.
Gloyn also noted that Sagen is held under Brookfield Business Partners, while First National is being acquired by separate private equity funds managed by Brookfield Asset Management, reducing the likelihood of competition concerns.
Birch Hill’s other portfolio companies include Rexall pharmacies, Park Lawn funeral homes, and Harbour Air Seaplanes.
