Private equity fund Warburg Pincus is acquiring Toronto-based ECN Capital with a $1.1-billion buyout.Nathan Denette/The Canadian Press
Private equity fund Warburg Pincus LLC plans to take private Toronto-based alternative lender ECN Capital Corp. ECN-T with a $1.1-billion buyout, the latest in a series of PE acquisitions of Canadian public companies.
Late Thursday, New York-based Warburg announced an agreement to buy ECN, run by entrepreneur and chief executive officer Steve Hudson, for $3.10 per share in cash. The offer came at a 13-per-cent premium to ECN’s closing price Wednesday on the Toronto Stock Exchange.
ECN reported earnings on Wednesday and its stock price rose 11.6 per cent on Thursday to $3.07 on the TSX.
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Warburg is buying a company that packages loans for modular homes, recreational vehicles and boats across North America, then sells the debt to banks and institutional investors. ECN manages US$7.6-billion in assets.
In 2016, Mr. Hudson spun out ECN from auto lender Element Fleet Management Corp. and built up the company through a series of acquisitions.
ECN sold one of its divisions in 2021 for US$2-billion and paid a $7.50-per-share special dividend. Over the past five years, the stock price has declined by 47 per cent.
In 2023, ECN held a strategic review that included talks with potential buyers. Five months ago, Mr. Hudson said, Warburg made an unsolicited approach that resulted in a friendly transaction.
“This transaction sets up ECN for the next chapter of growth, with Warburg sharing our strategy of ensuring affordability in housing,” Mr. Hudson said in an interview. He said: “We believe this transaction provides compelling certainty of value and liquidity.”
Since its founding, ECN has delivered a 238-per-cent return to its shareholders. Mr. Hudson said: “We have honoured our commitment as stewards of capital.”
ECN plans to have a shareholder vote on the offer in January. If the takeover is approved, it is expected to close by June of 2026.
ECN directors and shareholders who own 19 per cent of the company have agreed to support Warburg’s offer. The takeover requires approval from two-thirds of ECN shareholders.
Mr. Hudson will remain a director at ECN and head of its credit committee if Warburg’s offer is accepted. The private equity fund is expected to appoint a new CEO.
Prior to running ECN, Mr. Hudson founded Newcourt Credit Group, then sold it for US$2.7-billion and ran Hair Club For Men, which sold for US$210-million.
Private equity takeovers are coming at a blistering pace, as managers invest billions committed to their funds by institutional and individual investors.
In the first nine months of the year, PE funds invested $56.5-billion in 483 transactions, the strongest period on record, according to the Canadian Venture Capital Association. Equivalent periods from 2017 to 2019 averaged between $8-billion and $25-billion across 400 to 450 deals, “highlighting how the market is advancing beyond prepandemic norms,” the CVCA said.
Financial companies acquired by PE funds include fund manager CI Financial Corp., taken private earlier this year by Abu Dhabi-based Mubadala Capital for $4.7-billion.
ECN will pay Warburg a $35.4-million break fee if the transaction doesn’t close, including if the company accepts a superior offer, while Warburg agreed to pay a $53.1-million reverse break fee if the deal falls apart.
ECN’s financial advisers on the transaction were CIBC Capital Markets and RBC Capital Markets, along with law firm Blake, Cassels & Graydon LLP.
Warburg hired investment banks Macquarie Capital, BMO Capital Markets and Truist Securities and law firms Stikeman Elliott LLP; Wachtell, Lipton, Rosen & Katz; Paul, Weiss, Rifkind, Wharton & Garrison LLP; and Mayer Brown LLP.