Truist Financial Corporation (NYSE: TFC) has officially announced its subsidiary, Truist Bank, will acquire Service Finance Company, LLC, a prominent national provider of point-of-sale (POS) financing for the home improvement sector. The $2 billion acquisition of Service Finance, based in Boca Raton, Florida, significantly boosts Truist’s presence in the POS lending market.
This strategic move allows Truist to enhance its POS lending division, which already includes Sheffield Financial. Together, Service Finance and Sheffield will cater to over 250 manufacturers and associations, encompassing approximately 29,000 contractors and dealers. This consolidation establishes Truist as a leading national force in POS financing solutions.
Service Finance, headquartered in Boca Raton, leverages advanced technology to offer innovative payment solutions. They partner with over 14,000 home improvement dealers and contractors, facilitating financing for prime and super-prime borrowers for a wide array of home improvement projects and products.
Mike Maguire, head of National Consumer Finance and Payments at Truist, stated, “Acquiring Service Finance expands our wholesale payments business scale and capabilities. It allows Truist to provide cutting-edge financing solutions to Service Finance’s extensive dealer network and serve homeowners across the nation. This acquisition substantially reinforces Truist’s leadership in the rapidly expanding POS industry, and we are thrilled to collaborate with Mark Berch and the entire Service Finance team in Boca Raton.”
Jeff McKay, head of Truist’s POS lending unit, added, “Service Finance’s client-focused approach, combined with Truist’s financial strength and dedication to POS lending, ideally positions us to continue delivering exceptional and secure client experiences. Like Sheffield, Service Finance collaborates with leading brands in their sector and has built a reputation for outstanding client service and innovative solutions.”
Mark Berch, president and founder of Service Finance, commented, “As someone with a background as a home improvement contractor, I understand the critical need to provide contractors and their customers with accessible and appealing financing options. This ensures homeowners can focus on enjoying their homes. The home improvement market is dynamic and full of potential, and joining Truist enhances our growth prospects significantly. We are excited about the future from our base in Boca Raton.”
Service Finance boasts that over 80% of loan applications are processed via their mobile application, providing homeowners with a streamlined, fast, and paperless experience. Loan originations are projected to exceed $2.5 billion in 2021, with an approximate annual growth rate of 30% over the past three years, positioning Service Finance as a top-tier home improvement POS finance provider. Truist and Service Finance have an established relationship, with Truist having purchased over $2 billion in loans from Service Finance since 2018.
The acquisition presents several financial advantages for Truist:
- Strong profitability with a run-rate cash return on assets (ROA) exceeding 3%, coupled with low credit risk (average FICO score above 760).
- Effective deployment of Truist’s robust capital and liquidity (anticipated reduction of approximately 50 basis points in Truist’s Common Equity Tier 1 ratio).
- Transition of loan holding to Truist’s balance sheet, as Service Finance currently partners with external funding sources.
- Strong return on invested capital: Mid-teens IRR.
- Earnings-per-share (EPS) accretion:
- Approximately 1% cash EPS dilution in year two, assuming the acquisition replaces planned share repurchases (capital neutral).
- Approximately 2% cash EPS accretion in year two, assuming the acquisition utilizes excess capital.
- Long-term enhancement of Truist’s profitability metrics, including ROA, return on tangible common equity, efficiency ratio, and EPS growth.
Berch and the Service Finance team will remain based in Boca Raton, Florida, and become part of the POS lending unit within Truist’s National Consumer Finance and Payments group. Service Finance is currently a wholly-owned subsidiary of ECN Capital Corp., a Canadian entity. Truist anticipates finalizing the acquisition in late 2021, pending standard regulatory approvals and closing conditions.
Truist Securities acted as financial advisor and Davis Polk & Wardwell LLP served as legal counsel to Truist. Cravath, Swain & Moore LLP served as legal counsel to ECN Capital Corp.
About Truist
Truist Financial Corporation is a purpose-driven financial services organization dedicated to inspiring and building better lives and communities. Formed through the merger of BB&T and SunTrust, Truist holds a leading market share in numerous high-growth markets across the U.S. The company offers a comprehensive suite of services, including retail, small business, and commercial banking, asset management, capital markets, commercial real estate, corporate and institutional banking, insurance, mortgage, payments, specialized lending, and wealth management. Truist, headquartered in Charlotte, North Carolina, is a top 10 U.S. commercial bank with total assets of $522 billion as of June 30, 2021. Truist Bank is a Member FDIC. For further details, visit Truist.com.
About Sheffield
Sheffield Financial, based in Winston-Salem, N.C., is a division of Truist Bank, Member FDIC, and a subsidiary of Truist Corporation (NYSE: TFC). Since its inception in 1992, Sheffield has financed over $30 billion in loans and currently serves approximately 15,000 outdoor power equipment, power sports, and trailer dealers nationwide. Sheffield provides retail financing options across all 50 states for outdoor power equipment, trailers, and power sports vehicles such as snowmobiles, ATVs, side-by-side vehicles, motorcycles, and personal watercraft. More information about Sheffield Financial can be found at SheffieldFinancial.com.
About Service Finance Company
Service Finance Company, LLC (“SFC”), a subsidiary of ECN Capital Corp. (TSX: ECN), is a publicly traded vendor finance company. SFC offers financing solutions, including promotional and standard installment terms for home improvement contractors participating in the SFC Financing Program. SFC is an FHA Title I Lender authorized to operate as a sales finance company and third-party servicer in all fifty states and the District of Columbia. Based in Boca Raton, Florida, Service Finance plays a significant role in the local financial landscape.
About ECN Capital Corp.
ECN Capital Corp. (TSX: ECN), with managed and advised assets of US$33 billion, is a leading provider of business services to North American banks, credit unions, life insurance companies, pension funds, and investment funds. ECN Capital originates, manages, and advises on credit assets on behalf of its partners, specializing in unsecured loan portfolios, secured loan portfolios, and credit card portfolios. These services are delivered through three operating units: Service Finance, Triad Financial Services, and The Kessler Group.
For additional information about ECN Capital Corp. and Service Finance, please refer to the 2021 Investor Day presentation dated Feb. 4, 2021.
