JC Flowers makes first investment in Canada

The financial services-focused firm is investing alongside Värde Partners to buy CitiFinancial Canada from Citi, as banks divest their non-core businesses.

JC Flowers has made its first investment in Canada through the acquisition of CitiFinancial Canada from Citi.

The New York-based financial services-focused private equity firm is partnering with Minneapolis-based Värde Partners to buy the consumer finance branch of Citi, as various American banks continue divesting their non-core businesses on the heels of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

According to a source familiar with the transaction, JC Flowers initially came across this investment opportunity through the National Bank Financial, which provided financial advising and financing for the deal.

The source added that the Canadian market is attractive for several reasons, including a more stable and sensible regulatory environment compared with the US

Canada is also more economically stable, the source said, thanks to factors such as a sensible immigration policy and less risky exposure to various financial markets, the source said, calling the country a market with strong macroeconomic tailwinds for the time being

Canada is also attractive from a consumer finance perspective thanks to its strong social safety network from the government that pays for healthcare and education, minimising the risk of unexpected expenditures seen in the US that might cause delinquencies to rise

Terms of the transactions were not disclosed. 

Private Equity International understands that CitiFinancial Canada is said to have $1.9 billion in assets, more than a quarter of a million active customers and 217 branches across Canada. CitiFinancial Canada provides personal lending, mortgage solutions and retail financing programmes to its clients.

This divestiture follows Citi's closing of Brazilian branches and sale of its Argentine branches to Spanish Santander Group, as part of its geographical simplification, the source said, which has provided private equity firms with buying opportunities to enter the consumer finance market.

According to PEI data, JC Flowers, which manages about $6 billion in assets, launched its JC Flowers IV in December 2015 with an unknown target. The firm's previous flagship fund, JC Flowers III, raised $2.3 billion in 2008

This transaction follows JC Flowers' controlling stake acquisition in medical insurance underwriter ELMC in September

JC Flowers declined to comment.

Värde manages $12 billion in assets. It was not available to comment.