Multi-million dollar reverse mortgage acquisition

by Calida Smylie03 Apr 2014
New Zealand regional lender Heartland Bank has finalised its deal to buy Australasian reverse mortgage specialists Australian Seniors Finance and Sentinel for NZ$87 million (AU$80.5m).

Australian Seniors Finance is the biggest non-bank reverse-mortgage provider in Australia, with around 20% of the market. Sentinel is the biggest provider of reverse mortgages in New Zealand, with a market share of around 80%.

Heartland had announced the deal was underway in late February to buy in cash and shares from the Quadrant Private Equity-controlled Seniors Money International. The bank said its decision to invest in reverse mortgage business is consistent with its strategy of pursuing niche lending opportunities.

Heartland said it paid NZ$48.3 million in cash and issued 43 million Heartland shares at 90 cents a share to Quadrant.

The $87 million purchase price is a substantial discount on the more than $1 billion valuation put on Sentinel several years ago, when it was being prepared for a public offering. It was once a world leader in the niche lending product, with branches in Australia, Canada, Spain and Ireland.

But the global financial crisis dried up ready access to funding, and while Sentinel outlasted competitors, it eventually stopped writing new loans and was put into ‘suspended animation’ less than two years ago.

The Heartland deal was conditional on shareholder approval by Australian shareholders and a successful NZ$20 million capital-raising in New Zealand.

The acquisition of reverse mortgage companies is a sign the market is picking up again since the GFC, said Chris Evans, business development and relationships general manager at First Mortgage Services, which does the mortgage processing for Sentinel.

“When reverse mortgages coming back that’s when I know the market’s coming back. Because funders willing to fund reverse mortgages means the cost of funding is coming down and they are happy to take a more long-term view of the market,” he told Australian Broker last month.
 
Professional services firm Deloitte released a report last September concluding the reverse mortgage market is not living up to its full potential and risks becoming a missed opportunity.

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