First American Real Estate Solutions Merges With CoreLogic Systems, Inc.
February 5, 2007
SANTA ANA, Calif.,-- The First American Corporation (NYSE: FAF), has merged its First American Real Estate Solutions ("RES") division, a part of its FARES LLC subsidiary, with Sacramento, Calif.- based CoreLogic Systems, Inc., a leading provider of mortgage risk assessment and fraud prevention solutions. In 2006, RES and CoreLogic generated approximately $252 million and $74 million in revenues, respectively.
The new, combined company is majority owned by The First American Corporation through its FARES LLC joint venture with Experian Group Limited. CoreLogic's stockholders, comprised of its management team and TA Associates, hold an 18 percent economic interest and two of 10 board of director seats. The co-founders of CoreLogic, Steve Schroeder and Kraig Clark, have assumed key roles in the newly formed organization. The merger is the largest transaction in a series of analytic company acquisitions and minority investments completed by RES in recent years as a part of a larger domestic and international mortgage risk analytics strategy.
"This merger is a major milestone in our strategy to revolutionize the mortgage risk management process," said Parker S. Kennedy, chairman and chief executive officer of The First American Corporation. "This transaction unlocks value by creating a single, unified company with the unique data and predicative analytics resources that lenders, investors and consumers need throughout the mortgage lending and securitization process."
Traditionally, risk associated with mortgage lending was managed through labor-intensive quality control and due diligence reviews. The combined company makes this process more efficient and effective by applying advanced data and analytics at every point in the lending process.
George Livermore, currently president of First American's Property Information and Services segment, has been appointed president of the new company. Steve Schroeder, formerly chief executive officer of CoreLogic, will oversee the mortgage risk analytics business line for the company in the newly created role of executive vice president of risk management, reporting directly to Livermore. CoreLogic's staff and operations will remain at its Sacramento, Calif., headquarters and all products offered by each company will continue to be available to customers.
"This newly created company has the combined expertise and assets that allow our clients to identify, quantify and manage risk in a more transparent and precise way than previously possible," stated Livermore. "By providing innovative analytical solutions that touch every stage of the life of the loan, we will be able to help our lender, servicer and mortgage-investor clients become more competitive and profitable."
Since 2004, RES has acquired analytics companies LoanPerformance, UK Valuation and Basis100 and has purchased minority stakes in The Bohan Group, ComplianceEase, BasePoint Analytics and Australia-based RP Data. Together, these companies provide data, analytics and decisioning solutions that address the most pressing challenges in mortgage risk management, including fraud prevention, collateral risk assessment, mortgage prepayment forecasting, regulatory compliance and due diligence reviews.
"Since co-founding CoreLogic more than eight years ago, I have seen the market for mortgage risk management analytics grow from a specialty market to one that is rapidly expanding into every facet of the mortgage lending process," said Schroeder. "This merger provides the infrastructure and scale necessary to meet the growing market demands and enhances our ability to fulfill our mission of safeguarding and streamlining the mortgage loan process."
Terms of the Transaction
FARES LLC owns approximately 82 percent of the economic interests of the combined company through the ownership of high vote Class B shares. CoreLogic's stockholders own approximately 18 percent of the economic interests of the combined company through the ownership of Class A shares. In addition to the Class A shares, CoreLogic's stockholders received cash consideration of $100 million. To finance the cash consideration, FARES LLC has made a loan of $100 million to the combined company. FARES LLC secured bank financing for the $100 million loan to the combined company. CoreLogic's stockholders will have registration rights that could result in the merged entity becoming public in the future.
The transaction is estimated to be breakeven from an earnings-per-share perspective to First American in 2007. Excluding the impact of transaction- related intangible amortization, the merger is expected to increase earnings by approximately $2 million in 2007. Lehman Brothers Inc., served as financial advisor and delivered a fairness opinion to First American.
Source: The First American Corporation