Melbourne-headquartered financial administration group Computershare (ASX: CPU) has struck a deal to sell its US mortgage services business to Washington, DC-based Rithm Capital Corp for an estimated US$720 million ($1.13 billion), after a cost-out program helped return the division to profitability following a difficult few years.
Computershare's US mortgage services was badly hit during the pandemic with a number of revenue lines affected by the CARES Act moratorium on mortgage foreclosure for homeowners struggling with financial hardship due to COVID-19.
In FY22 the disappointing results continued with a negative EBIT of $6.3 million - Computershare's only segment in the red - as higher mortgage interest rates led to low origination and refinancing volumes.
This poor performance prompted the launch of a cost-out program in the second half which delivered $23 million in savings for FY23 - a year when revenue for US mortgage services declined by 17 per cent to $351 million, compared to more than $446 million just two years prior.
Amidst a further $40-50 million in savings estimated in the current financial year from cost cutting, Computershare has been assessing its options for its mortgage services businesses in both the US and the UK, with a decision now made to offload the former.
"We have completed a detailed review of our US Mortgage Services business and determined that a full divestment of the business via a competitive process would be in the best interests of shareholders," says Computershare CEO and president Stuart Irving.
"Today we are pleased to announce the sale of the business to Rithm. Rithm has strong mortgage industry credentials and the ability to bring capital to scale the business further. With its track record of successful M&A execution and integration, we expect a smooth transition for the business and our customers.
"Today’s announcement represents an important milestone in executing Computershare's simplification strategy and drive to increase the quality and consistency of earnings."
He says the divestment will allow Computershare to focus efforts on core businesses which have high levels of recurring revenues, long-term growth runways, low capital intensity and attractive returns through the cycle.
"The proceeds from the sale will enhance Computershare’s flexibility to pursue strategic investments and consider further capital management opportunities," Irving says.
"We thank the management and employees of the business for their hard work and successes along the way and wish them the very best for their next chapter."
The transaction is expected to result in a one-off statutory pre-tax loss on sale of approximately US$150-180 million ($236-283 million), although the company notes this non-cash impairment does not impact the underlying performance or cash flow of Computershare.
Today's announcement also follows Computershare's sale of its California-headquartered bankruptcy and class actions business Kurtzman Carson Consultants (KCC) in May for an undisclosed sum. The business was acquired for an estimated $148 million in 2009, according to estimates from the Sydney Morning Herald at the time.
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