Eyeing expansion, Element deals for SPAC

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Specialty lender Element Financial Corp. plans to take over special purpose acquisition corporation (or SPAC) Infor Acquisition Corp. to add firepower and connections to Element at a time when the company has ambitious plans to expand into credit markets the banks are exiting.

Element's friendly offer, the first deal for a Canadian SPAC since the sector sprang to life in 2015, is a share exchange that values Infor at $220-million. That's how much cash Infor holds after an initial public offering last year, and Infor's founders say the best way to put this money to work is to combine forces with a growth-oriented finance company.

In a separate but related transaction, Element announced in February that it plans to split into two companies. There is an auto fleet finance business with $19-billion in assets that will keep the Element name. And there is a specialty lending company with $8-billion in assets that announced Monday it will be known as ECN Capital Corp. The split is expected to take place by the end of the year.

It's ECN Capital, headed by current Element CEO Steven Hudson, that is offering to acquire Infor.

The Infor deal, which requires approval from the SPAC's shareholders, will see two executives with a track record for successfully competing with the big banks join ECN Capital: Infor CEO Neil Selfe will become ECN Capital's executive vice-chairman and Infor co-founder William Holland, chairman of CI Financial Corp., will join the ECN Capital board.

Mr. Hudson said the Infor takeover will give ECN Capital both cash and management depth as the company works on acquisitions of North American specialty loan portfolios from European and North American financial institutions that are streamlining operations and exiting niche credit markets, in part a result of higher capital requirements imposed by regulators. The ECN Capital team has a solid track record for this sort of acquisition, including the purchase of an arm of GE Capital for $8.6-billion last year.

When it debuts as an independent company, ECN Capital will manage funds for clients that invest in loan portfolios, including $3.5-billion of aviation loans, $2.2-billion of rail-car loan and $2.4-billion of vendor financing assets. Acquisitions are expected to expand the business, and Mr. Hudson said in an interview that while ECN Capital could not give details on potential takeovers: "It is worth noting that we've never raised capital in the past without a specific target in mind."

Mr. Hudson said if the Infor acquisition is successful, ECN Capital will have the cash and management depth needed to target $1-billion to $2-billion acquisitions.

From Infor's point of view, Mr. Selfe said in an interview: "We looked at more than 40 transactions and ECN Capital is by far the most compelling opportunity we found."

"When we created Infor, we said our holy grail was targets that were carve outs from public companies, that were market leaders, with strong management teams, based in Canada, and ECN checks all those boxes," Mr. Selfe said.

Infor was one of six SPACs launched in Canada last year, when the sector raised a total of $1-billion from investors. SPACs must invest within two years of their launch, or return capital to investors, and Infor is the first SPAC to do a transaction. SPACs are common in U.S. capital markets, and came to Canada in the wake of new regulations.

Mr. Selfe said the major criticism of SPACs is that founders tend to receive more upside than other investors when deals get done, and the sale to ECN Capital is structured to ensure Infor founders forgo 80 per cent of their potential gains to ensure the transaction wins approval from shareholders.

On the other side of the table, Mr. Hudson said the cost of acquiring Infor is approximately equivalent to the cost of raising money through an ECN Capital share sale, with the added benefit of adding management depth at a time when the company expects to expand. The Infor acquisition is expected to close by the end of October, 2016.

In addition to joining ECN Capital, Mr. Selfe remains CEO of boutique investment bank Infor Financial Group, which he co-founded in 2015 after working at investment bank GMP Capital Inc. and money manager Diversified Global Asset Management Corp.