ECN Capital Corp. announced it has entered into a definitive agreement with Truist Bank, the wholly owned bank subsidiary of Truist Financial Corporation, to sell all of the issued and outstanding equity interests in each of Service Finance Company, LLC and Service Finance Holdings, LLC (together SFC), each a wholly owned, indirect subsidiary, for cash proceeds of $2 billion.
Service Finance is a national provider of point-of-sale (POS) financing solutions for the home improvement industry.
“ECN’s primary strategic directive has been to manage and maximize investor capital in the specialty finance sector. Today’s announcement to sell SFC for $2 billion marks another milestone on the road to that goal,” said Steven Hudson, CEO of ECN Capital Corp.
“Service Finance has performed spectacularly since ECN’s investment in September 2017 and I want to thank Mark Berch and his entire team for their remarkable contributions. Truist has been a long-time partner of SFC and is best positioned to build on the successes we’ve had over the last several years. We believe this transaction maximizes value for ECN shareholders and puts SFC in the best position to succeed in its next phase of growth,” said Hudson.
“Going forward, ECN is well-positioned to continue its success with two fantastic businesses in Triad and KG,” Hudson continued. “As with Service Finance, ECN has been able to work with both companies to meaningfully expand product menus and improve operational excellence, which will drive significant opportunities to continue to maximize shareholder value in the future.”
The transaction is subject to standard licensing and regulatory approvals, the satisfaction of customary closing conditions and is expected to close late in the fourth quarter.
As a result of the transaction agreement that was entered into with Truist Bank, ECN Capital received fully underwritten agreements from its senior lenders for the amendment of its existing senior credit facility following the closing of the transaction. ECN Capital’s existing senior credit facility will be amended and restated so as to provide for an aggregate of $700 million in revolving funding for a period of four years from the closing date of the transaction. Canadian Imperial Bank of Commerce will act as administrative agent and syndication agent, and Bank of Montreal will act as collateral agent.
CIBC Capital Markets acted as financial advisor and Cravath, Swaine & Moore LLP and Blake, Cassels & Graydon LLP acted as legal counsel to the Company in connection with the Transaction.
In its announcement, Truist said the acquisition of Service Finance expands Truist's POS lending business, which currently includes Sheffield Financial, a leading POS lender in the power equipment, power sports, trailer and other consumer products segments. Service Finance and Sheffield will serve more than 250 manufacturers, associations and other sponsors spanning approximately 29,000 contractors and dealers—making Truist a leading national provider of POS lending solutions.
Based in Boca Raton, FL, Service Finance uses proprietary technology to deliver innovative payment solutions to more than 14,000 home improvement dealers and contractors, helping them provide prime and super-prime borrowers with financing for a wide range of home improvement products and projects.
"The acquisition of Service Finance expands the scale and capabilities of our wholesale payments businesses, enabling Truist to deliver innovative financing solutions to Service Finance's nationwide network of dealers and serve homeowners across the country," said Mike Maguire, head of National Consumer Finance and Payments at Truist. "This acquisition significantly strengthens Truist's leadership position in the rapidly growing POS industry, and we're excited to partner with Mark Berch and the entire Service Finance team."
"Service Finance's client-centric model, coupled with Truist's financial strength and commitment to POS lending, perfectly position us to continue to provide distinctive, secure and successful client experiences," said Jeff McKay, head of Truist's POS lending unit. "Just like Sheffield, Service Finance partners with leading brand names in their industry and has earned a reputation for unparalleled client service and delivering innovative solutions."
"As a former home improvement contractor, I know how important it is to help contractors and their customers get access to convenient and attractive financing so our end-customers can spend more time enjoying the moments that matter, in the place that matters the most—their homes," said Mark Berch, president and founder of Service Finance. "This is a dynamic market with tremendous potential, and joining Truist only improves our outlook for growth."
More than 80 percent of Service Finance's loan applications are completed on its mobile application, offering homeowners a simple, fast and paperless experience. Originations are expected to exceed $2.5 billion in 2021 and have grown at approximately 30 percent annually over the past three years, making Service Finance a top-three home improvement POS finance company. Truist has a strong historical relationship with Service Finance and significant experience in the home improvement industry, including having purchased more than $2 billion of loans from Service Finance since 2018.
Berch and the Service Finance team will join the POS lending unit of Truist's National Consumer Finance and Payments group and continue to be based out of Boca Raton, Florida. Service Finance is a wholly owned subsidiary of Canadian-based ECN Capital Corp. Truist is targeting a late 2021 close for the acquisition, subject to standard licensing and regulatory approvals, and satisfaction of customary closing conditions.
Davis Polk & Wardwell LLP served as legal counsel, and Truist Securities served as financial advisor to Truist. Cravath, Swain & Moore LLP served as legal counsel to ECN Capital Corp.