Brookfield Asset Management and a private equity partner reached a friendly deal to take over First National Financial Corp., a mortgage company backed by Canadian billionaire Stephen Smith, for about C$2.9 billion ($2.1 billion).
Funds managed by Brookfield and Toronto-based Birch Hill Equity Partners Management Inc. agreed to pay C$48 a share in cash for First National, an originator of commercial and residential mortgages. That's a 13% premium to where the shares closed Friday.
First National's board shopped the company to a "broad pool of potential buyers" and received multiple proposals, of which the Brookfield-Birch Hill offer was the best, according to a statement late Sunday. National Bank Financial analyst Jaeme Gloyn said the offer values the mortgage company at about 13 times analysts' estimates of core earnings per share, slightly above its peak multiple. "The deal will likely close at this level," Gloyn wrote in a note to clients.
Still, First National shares were slightly above the offer price, trading at C$48.06 as of 10:01 a.m. in Toronto.
First National is controlled by Smith and Moray Tawse, who own 71% of the company. They'll sell about two-thirds of their holdings and roll the rest into the private company after the deal. But the transaction still requires the majority approval of other voting shareholders.
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Smith co-founded the firm, which has been a winner for investors, generating a total return of more than 415% over the past 10 years, including dividends, as of last week's close, according to data compiled by Bloomberg. Jason Ellis is expected to stay on as First National's chief executive officer, the companies said.
First National's main business is to originate prime mortgages, working with independent brokers to find homebuyers in the single-family segment and funding the loans through institutional investors.
