One of the leading private equity firms in the world, New York-based The Blackstone Group L.P. (BX - Free Report) announced an agreement to purchase a majority stake in the California-based privately held mortgage lender Stearns Holdings, LLC, parent company of Stearns Lending, LLC.
The financial terms of the transaction, which is expected to close by 2015-end, were not divulged. However, Glenn Stearns (founder of Stearns) will continue to hold an important ownership interest in the company under the deal.
The affiliation is expected to be beneficial to both the companies. While the Blackstone funds will speed up Stearns’ growth pace by providing the required resources, Blackstone will benefit from Stearns’ leadership in the mortgage market and its robust platform. Also, the added expertise of the Blackstone team will support and accelerate Stearns’ plan to put together the finest residential mortgage lender in the U.S.
JPMorgan Chase & Co.’s (JPM - Free Report) J.P. Morgan Securities LLC is serving as the exclusive financial advisor to Stearns, while Bank of America Corporation’s (BAC - Free Report) Merrill Lynch is serving Blackstone.
Glenn Stearns, Chairman of Stearns said, “Aligning with a strong financial partner will provide us with the resources to continue executing our strategic plan as we aim to increase profitable market share growth.” Chinh Chu, a Senior Managing Director at Blackstone stated, “We look forward to partnering with Founder Glenn Stearns, CEO Brian Hale and the entire team at Stearns to accelerate the next phase of the company’s growth.”
Stearns with over 1,700 employees has funded around $46 billion through 187,762 loans over the past four years. The company made it into the Inc. 5000 list of Fastest Growing Private Companies in America in 2013 and 2014, based on revenue growth of 273% over a three-year period. In 2015, Inside Mortgage Finance also recognized Stearns as #9 in the Top 10 Direct Lenders in the first quarter.
Blackstone, on the other hand, has been struggling with pressurized revenues, which hurt its latest earnings results. Lower performance fees, investment income as well as net management and advisory fees resulted in a disappointing top-line story, triggering a decline of more than 16% in the company’s share price since the latest results.
While the current deal along with the company’s robust fund-raising ability are expected to ease the revenue strain to some extent going forward, we remain concerned about the adverse effects of the ongoing capital market volatility and stringent regulations on the company's financial performance in the near term.
Currently, Blackstone carries a Zacks Rank #3 (Hold). A better-ranked investment management firm is Lazard Ltd. (LAZ - Free Report) , which carries a Zacks Rank #2 (Buy).
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