Please email ft@mergermarket.com or call EMEA: + 44 (0)20 7059 6105 Americas: +1 212 686-5277 Asia-Pacific: +852 2158 9730 for further information on mergermarket and how to receive more articles like the one below.
--------------------------------------------------------------------------------------------------------
SLM could divest from its debt management and mortgage operations to sharpen focus and lessen debt related to today’s announced USD 25bn buyout, sources said.
According to two sources familiar with the situation, the rationale for the take-private deal was the student loan related businesses, viewed as being at SLM’s core, and that business viewed as less core could be candidates for divestiture, though the sources said no decisions have been made.
The sources said that the buyout was to be financed with approximately two-thirds debt, which they said was not unusual for a typical buyout but could be considered high for a buyout of a lender, and that divestitures could likely result after the deal closes. Spokespersons for Bank of America and JPMorgan Chase declined comment on whether any divestitures of businesses might occur. A SLM spokesperson did not return phone calls.
Subsidiaries that could be divestiture candidates, according to the sources, are GRP Financial Services, a speciality finance company that purchases and resolves mortgage loans, and Arrow Industries, a receivables manager. These two subsidiaries, seem least core to SLM, the sources said. They said that the next tier of what could be considered non-core operations are those that feed-off of SLM’s student loan database but do not consist of student-loan or academic-related activities, and possibly SLM’s debt recovery operations. Examples of those subsidiaries, identified by the sources, are Sallie Mae Home Loans, Pioneer Credit Recovery, and possibly General Revenue Corporation.
The sources said that the approximately 26-year-old General Revenue Corporation, acquired by SLM in 2002, is very marketable, as it is one of the largest college-focused collection agency in the US. Likely interested purchasers of Ohio-based General Revenue Corporation, Illinois-based Arrow Financial Services, and New York-based Pioneer Credit Recovery, according to two industry analysts, could include strategics such as Pennsylvania-based NCO Group, Missouri-based Outsourcing Solutions, and Virginia-based Portfolio Recovery Associates. According to the analysts, Michigan-based Sallie Mae Home Loans, and New York-based GRP Financial Services, particularly the former, could be of potential purchase interest to lenders such as Washington Mutual, Countrywide Financial, and Wells Fargo.
The sources familiar with the situation said that annual revenue of some of the possible divestiture candidates are thought be less than USD 50m and that several or more may have to be sold off to raise significant capital. GRP Financial was acquired by SLM in 2005. General Revenue was acquired by SLM in 2002. Arrow has more than USD 16bn in debt under financial management. Sallie Mae Home Loans operates three regional centers and has funded more than USD 8bn in loans.
A consortium led by private equity firms J.C. Flowers & Co and Friedman Fleischer & Lowe LLC agreed to buy a 50.2% stake in SLM, and Bank of America and JPMorgan Chase are each taking a 24.9% stakes in the NYSE-listed, Virginia-based company.
--------------------------------------------------------------------------------------------------------
mergermarket is an M&A intelligence tool focused on providing actionable, origination intelligence to its client base of the world’s principal advisory firms, investment banks, law firms, private equity firms and corporates. mergermarket provides clients with articles such as the one above in real-time via an online platform and personalized email, BlackBerry alerts and an online platform. For more information;
please email ft@mergermarket.com or call EMEA: + 44 (0)20 7059 6105 Americas: +1 212 686-5277 Asia-Pacific: +852 2158 9730
