The $1-billion, 50-year extension of Teranet's contract to operate Ontario's land registry system came out of a confluence of needs.
Ontario needed cash, and Teranet needed to ensure its business model worked for the long-term. Without the certainty of access to the land registry that is the basis of its business, there's not much left for Teranet.
Even though the deal didn't expire until 2017, the Ontario government's requirement for cash now to help plug a hole in its budget reated an opportune time for Teranet chief executive officer Jay Forbes to strike a deal.
Under the terms of the deal announced Thursday, the Province of Ontario will receive $1-billion in cash up front and a 50 year stream of royalty payments.
Teranet gets a 50-year extension of its contract, giving the company's owners at the pension fund OMERS confidence that their investment will be around and throwing off cash for decades. Teranet will be on the hook for the full cost of maintaining and upgrading the system, freeing Ontario from any cash outlays.
There's no small risk in this deal for Teranet. It will have to finance the $1-billion cheque it's writing and ensure that capital costs and expenses are kept in tight check, given that the deal caps fee increases at half the rate of inflation. (Even that is a win for Teranet, which hadn't been able to increase fees under the old deal.)
The financing should be interesting, but given the 50-year term of the deal and the welcoming state of credit markets, Teranet should have no trouble finding backers.
Once that's done, people who know Teranet and Mr. Forbes say the company has a new appetite for risk, and will be looking to grow with the backing of OMERS.
When Borealis Infrastructure, the arm of OMERS that specializes in investments like power plants and bridges, bought Teranet, they brought capital and a new management team led by Mr. Forbes.
If the name rings a bell, it's because he was the chief executive officer of Aliant Inc. as it was consolidating the maritime phone business. After that, he was a top executive at Ingram Micro, where he was tasked with a turnaround of operations in Europe and South Africa.
He joined Teranet in July 2009 and he has a mandate to grow the business.
Sources say Teranet took a look at the property information assets MacDonald Dettwiler & Associates Inc. put up for sale earlier this year, but took a pass because the terms weren't to Teranet's liking. However, there are likely more deals to come from Teranet.