Equitable Group Inc. EQB-T was already a fast-growing digital challenger in banking. With a $470-million deal to acquire Concentra Bank, it is looking to cement its place as a leading alternative to Canada’s biggest banks.
Equitable, which owns the branchless EQ Bank, expects the acquisition will make it the seventh-largest bank in the country. Adding Concentra’s $11.3-billion of assets would vault it ahead of Montreal-based Laurentian Bank of Canada, which is overhauling its strategy as part of a turnaround plan.
Even after the deal closes, Equitable will still be a fraction of the size of the dominant Big Six banks. But it presents a chance to double down in specialized businesses, where it has already found profitable niches, and adds new lines of business such as trust services to broaden its reach. It also gives Equitable a strong position providing back-end banking services to hundreds of credit unions and fintechs.
“The banking industry really needs to change,” Equitable’s chief executive officer, Andrew Moor, said in an interview. “This transaction’s all about a bank that’s trying to be a catalyst for change.”
Concentra is a mid-market digital bank, recently rebranded as Wyth Financial, with roots stretching back to 1950s Saskatchewan. In retail banking, it is a small player in mortgages and savings accounts, and it offers treasury services, commercial lending and leasing, as well as mortgage securitization. It is also the largest provider of wholesale banking and trust services to most of the country’s credit unions outside Quebec, and a lender to financial technology startups.
Equitable, which calls itself “Canada’s challenger bank,” was already growing rapidly. Its overall deposit base increased 26 per cent to $20.7-billion last year, and its loan portfolio increased by 16 per cent. Though Equitable rarely makes acquisitions, Concentra presented an opportunity that was “too compelling to ignore,” Mr. Moor told analysts on a Monday conference call.
The combined bank will have about $47.5-billion of assets. Concentra’s $7.4-billion loan book has significant overlap with Equitable’s existing portfolio, including in mortgages for borrowers who struggle to qualify with major banks. There is also synergy in commercial lending and equipment leasing. In addition, Concentra has $6.3-billion of deposits.
“Concentra happens to be extremely close to our business, so by being able to add scale with minimal risk, we add a lot more muscle to be able to achieve our objectives,” Mr. Moor said. “We really understand the assets.”
Equitable will also acquire Concentra’s trust services business, Wyth Trust, which has $31.8-billion of assets under administration, giving Equitable immediate entry into a new line of business. And it gives the combined business more geographic balance: While both banks are concentrated in Ontario, Equitable is strong in Quebec, while Concentra is more prominent in Alberta, British Columbia and Saskatchewan.
Equitable expects to reap more than $30-million in annual cost savings over two years by combining the banks. Equitable is adding about 400 Concentra employees, and Mr. Moor said the savings will not come from job losses.
To protect its capital levels, Equitable will pay part of the cash purchase price by raising $200-million through a bought deal offering of subscription receipts, and the rest using a credit facility from a syndicate of banks. It will pay a $35.7-million premium to book value of common equity, which could fluctuate until the closing date.
TD Securities Inc. and RBC Dominion Securities Inc. are bookrunners for the subscription receipt offering, which is co-led by CIBC World Markets Inc., Scotia Capital Inc. and BMO Nesbitt Burns Inc. The credit facility is led by TD and RBC, with CIBC also participating.
Equitable will acquire the 84-per-cent stake in Concentra currently owned by Credit Union Central of Saskatchewan (SaskCentral), and has support agreements with a majority of shareholders who own the other 16 per cent to take full ownership.
The boards of Equitable, Concentra and SaskCentral unanimously approved the deal, which is expected to close in the second half of 2022.
On Monday, Equitable announced fourth-quarter profit of $80.1-million, or $2.29 a share, compared with $71.4-million, or $1.74 a share, in the same quarter last year. The company also raised its quarterly dividend by 51 per cent to 28 cents a share – a larger-than-normal increase to catch up after Canada’s banking regulator lifted a temporary ban on dividend hikes imposed during the COVID-19 pandemic.
Equitable’s share price rose 2.8 per cent to $75.43 on the Toronto Stock Exchange on Tuesday.
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James Bradshaw