Brookfield and Birch Hill are jointly acquiring a 62-per-cent stake in First National for $48.00 per share in cash.Mark Blinch/Reuters
Private equity funds run by Brookfield Asset Management Ltd. BAM-T and Birch Hill Equity Partners Management Inc. are buying a majority stake worth nearly $1.8-billion in First National Financial Corp. FN-T, the mortgage company co-founded by billionaire Canadian financier Stephen Smith.
Brookfield and Birch Hill are paying $48 a share in cash to jointly acquire 62 per cent of First National, giving the company a total equity value of $2.9-billion. The offer is a 13-per-cent premium to Friday’s closing price and 15 per cent higher than First National’s average share price over the past 30 days.
The deal gives First National’s founders, Mr. Smith and Moray Tawse, a way to cash out about two-thirds of their shares in the company they have owned for 37 years, while still keeping a hand in the business.
Mr. Smith, 74, owns 37.4 per cent of First National, and will remain the company’s chairman. Mr. Tawse, who turns 68 this year, owns 34 per cent of the shares.
After the deal closes, Mr. Smith and Mr. Tawse will each own about 19 per cent of the business.
First National is a leading non-bank mortgage lender, issuing and securitizing residential and commercial mortgages mostly to prime borrowers, who have strong credit and income. The company had $155-billion of mortgages under administration as of March 31, up 7 per cent from a year earlier.
It has also been a key piece in the mortgage lending empire Mr. Smith has built by betting big on the strength of Canada’s housing market.
He is chairman and co-owner of Fairstone Bank of Canada, which merged with alternative mortgage lender Home Trust last year. And he is an owner and director of Canada Guaranty Mortgage Insurance Co., one of the country’s largest private mortgage insurers, as well as the largest individual shareholder in Equitable Bank EQB-T.
“We believe the transaction represents an attractive valuation for First National shareholders,” said Jaeme Gloyn, an analyst at National Bank Financial Inc., in a note to clients.
First National’s share price rose 13.4 per cent to close at $48.15 on the Toronto Stock Exchange on Monday.
Brookfield and Birch Hill are acquiring control of a business with a decades-long track record and an established position in the Canadian mortgage market.
Birch Hill previously owned reverse mortgage company HomeEquity Bank, while Brookfield owns Sagen Mortgage Insurance Co. and has made numerous investments in financial services.
Both private equity firms will now be looking for ways to boost First National’s value with changes to operations and costs. First National chief executive officer Jason Ellis is expected to stay on and lead the business, the company said.
“This transaction represents the start of an exciting new chapter for First National,” Mr. Ellis said in a statement.
First National said in a news release that the deal came after a strategic review process that was led by RBC Dominion Securities Inc., “which included outreach to a broad pool of potential buyers and resulted in multiple acquisition proposals.”
The company fielded offers from both Canadian and U.S. private equity firms, according to a source with knowledge of the discussions. Canada’s major banks, who are First National’s largest competitors in mortgage lending, were not contenders to acquire the company.
The Globe and Mail is not identifying the source as they were not authorized to discuss the deal talks.
The competitive bidding process that led to the deal “reduces the likelihood of a superior bid emerging,” Mr. Gloyn said.
The deal includes a $50-million break fee to be paid by First National if the deal is terminated for any reason, and Mr. Smith and Mr. Tawse have agreements to vote for the transaction and against any competing offer.
A special committee of independent directors obtained opinions from BMO Nesbitt Burns Inc. that the value of First National shares was between $44 and $50, and that the transaction is fair.
The deal is expected to close in the fourth quarter this year, subject to approvals by shareholders, a court and regulators. The company plans to hold a shareholder vote in September.
Editor’s note: An earlier version of this story incorrectly stated the value of First National’s shares in a BMO opinion note ranged from $44 to $48. The value of shares actually ranged from $44 to $50. This version has been corrected. (July 29, 2025) A previous version of this story referenced a $50-million break fee to be paid by First National if the deal is terminated for any reason. The fee only applies in certain circumstances. Stephen Smith's title has also been updated.