Fidelity Selling 25% Stake in Tech Unit to Thomas Lee
Fidelity National Financial here has agreed to sell a 25% stake in its mortgage and banking technology business to buy-out king Thomas H. Lee Partners LP, and other firm, Texas Pacific Group, for $500 million.
Fidelity National Information Services (known internally as FIS), a subsidiary of the title insurance giant, owns the Empower loan origination software brand which five of the top 25 lenders use.
The unit also includes the nation's largest servicing platform, the former Alltel Information Services which manages 25 million loans. This past fall FNF had hoped to spin-off FIS into a separate, publicly-traded company but thought it could unleash more of the unit's value through a recapitalization plan and selling a large stake to THLP/TPG.
"This is an opportunity for Bill (Foley) to get value," said FIS mortgage president Hugh Harris about the recapitalization. "The plan now is to keep it as a division of FNF." Even with the recap and the sale to THLP/TPG, William Foley, chairman and chief executive of FNF, said that a spin-off, down the road, is still a possibility.
THLP/TPG is getting a 25% stake in FIS, a business that includes Mr. Harris' group, but also "real estate related services," a division headed by Ernie Smith. FIS has total annual revenues of about $3 billion.
"We are generating significant cash flows," Mr. Harris said in a recent interview with Mortgage Servicing News.
FIS says it has a 50% market share among servicing "service bureaus," and a 23% market share among funders with front-end origination systems. Not only will THLP soon own a 25% stake in FIS, but last year it bought into ResMae of California, a fast growing subprime lender. (THLP and TPG will own the 25% together. TPG was not involved in the ResMae deal.)
The sale to THLP is not dependent on FIS's $2.8 billion recapitalization plan which was announced in tandem with the Lee deal.
Under the recap plan FIS will obtain $2.8 billion in senior secured credit facilities from a consortium of lenders. FIS will repay all of its outstanding debt using the credit line and distribute $2.7 billion to parent FNF. FNF, according to a statement it made about the deal, will not guarantee the credit facility.
Once the deal is closed Fidelity will pay a $10 per share dividend to its share holders. Of the $500 million that THLP and TPG are paying, Fidelity will book a gain of $375 million. The company said the dividend payment is not contingent on the FIS sale to THLP/TPG.
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