Guild, Bayview talks result in deal valued at $1.3 billion

The outcome of previously-reported talks between Guild Mortgage and Bayview, a quiet servicing giant and asset manager, is a finalized acquisition valued at $1.3 billion that will transform the lender.

In line with previous talks, a Bayview fund will buy outstanding shares of Guild it didn't already own. The publicly-traded lender plans to go private without a need for additional authorization, and pay out $20 per common share to stockholders plus additional special dividends. 

The agreement adds to other industry consolidation between the two sides of the mortgage business such as nonbank lending powerhouse Rocket Mortgage's acquisition of servicing leader Mr. Cooper.

"With each company's different strengths and areas of expertise, this collaboration will form one of the most dynamic mortgage origination and servicing platforms in the industry," said Juan Gonzalez, managing director and CEO of Lakeview Originations. 

Guild will retain independent operations in the acquisition but also partner closely with Bayview affiliate Lakeview Loan Servicing, according to the two companies' agreement.

"Our expertise in distributed retail origination, retained servicing and the customer-for-life balanced business model makes this a complementary partnership," Guild CEO Terry Schmidt said in the press release. 

Lakeview holds 2.8 million loans in its servicing portfolio that Guild will target to generate additional origination opportunities.

The shortage of opportunities for new originations given the large number of outstanding loans with record-low rates from the pandemic's housing boom and persistent affordability constraints have made lenders more reliant on servicing relationships to generate leads.

An asset manager like Bayview can have an edge over other players in managing mortgage servicing rights as an investment given they tend to have valuations sensitive to rate fluctuations as seen in public earnings. MSRs have become increasingly concentrated at large lenders.

Bayview has traditionally sent the operational responsibility for the servicing rights it owns to others, and the acquisition of Guild could potentially change that, according to a Keefe, Bruyette & Woods report on the deal

"Given Guild's servicing platform, it is possible that Bayview increases the percentage of loans that it services internally," Bose George, Frankie Labetti and Alex Bond, stock analysts at KBW, said in the research note.

In addition to common share payout, Guild stockholders will receive a special dividend up to 25 cents per share in 2025 with an expected close in the fourth quarter subject to customary conditions but without any financing contingencies.

If the deal fails to close this year, they'll receive additional special dividends of 25 cents per share each quarter until it does.

The $20 per share payment "represents a premium of approximately 56% to Guild's unaffected closing common stock price on May 23," which was the last trading day before Bayview disclosed the potential deal.

The amount also is in line with a 27% premium to Guild's tangible book value at the end of the first quarter.

Authorization for the transaction comes from McCarthy Capital Mortgage Investors, which is an entity that the two companies indicated is the controlling shareholder.

Guild Mortgage's stock was up around $4 from where it was at the close of the previous trading day at the time of this writing on Tuesday. It was trading at roughly $20 per share at that time.