Toronto-based consumer lender ECN Capital Corp. is selling its home renovation financing unit to Truist Financial Corp. for US$2-billion.
Service Finance, which provides home improvement loans, operates solely in the United States and has underwritten more than US$7-billion in loans since it was founded in 2004. ECN acquired the company in 2017 for US$304-million.
In an interview, ECN chief executive officer Steven Hudson said it was the right time to sell the business after operating it for four years. “Eventually you transition these businesses to deposit-taking institutions, i.e. banks … they’ll take it to the next phase.”
Truist, the eighth-largest bank in the U.S., was formed in 2019 from the merger of BB&T and SunTrust. ECN, which lists its shares on the Toronto Stock Exchange, said it will pay shareholders a dividend of $7.50 a share from the sale proceeds. The transaction is expected to close in the fourth quarter of 2021.
Service Finance offers loans through more than 10,000 vendors. The company provides loans, then bundles and sells the debt to banks, credit unions, insurers and pension plans. In 2020, the Canada Pension Plan Investment Board committed to buying US$1-billion of Service Finance debt.
Service Finance customers typically have strong credit; the company says the average credit score is above 760, which is considered very good.
In 2016, ECN was spun out from Element Fleet Management Corp., a Toronto-based vehicle and equipment-leasing company that Mr. Hudson founded in 2011. ECN also operates U.S.-based Triad Financial Inc., which provides loans for manufactured, mobile homes, and Boston-based the Kessler Group, which manages credit card portfolios. Mr. Hudson said he won’t rush to replace Service Finance with another business within ECN.
“At the right time we will add a third leg, but nothing in the short term. We’ve got a lot of resources and attention on growing Triad and Kessler.”
Of the US$662-million in loans ECN underwrote in the three months ended March 31, 2021, Service Finance originated US$480-million. The company earned US$5.9-million in profit in the same period.
Mr. Hudson said his home improvement unit fared well during the pandemic, with U.S. homeowners pouring cash into renovations at a time when there were few options for travel and recreation, and the federal government injecting cash stimulus into Americans’ bank accounts. In 2020, more than 40 per cent of Service Finance’s loans were for HVAC improvements.
“You’re now operating your air conditioner on 24/7, and that air conditioner now needs to be replaced,” Mr. Hudson said. “A lot of people spending all the time in the house had to create an office.”
The company originated 13.5 per cent of its loans in California, followed by Texas at 13.1 per cent, and Florida – where the company is headquartered – at 8 per cent. He expects a home renovation “boom” ahead.
“A lot of people bought a home in the last 12 months and are now going into a cycle to improve those homes,” he said. “I think Truist is buying this business at the right time.”
Mr. Hudson is a serial entrepreneur who founded Newcourt Credit Group Inc., which was the second-largest non-bank lender in the world. In the early 2000s, he partnered with a private equity firm to buy a majority stake in HairClub for about US$25-million. In 2004, the company sold to U.S. salon chain Regis Corp. for $US210-million.
CIBC Capital Markets acted as ECN’s financial adviser for the deal. Cravath, Swaine & Moore LLP and Blake, Cassels & Graydon LLP were its legal advisers.
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