Financeit buys biggest rival to expand monthly lending to Canadian home improvement market

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Michael Garrity wants to change the way Canadians pay for home improvement.

The chief executive officer of Financeit Canada Inc. figures less than 5 per cent of those costly projects are financed the way other big purchases are bought – with monthly instalment loans. Homeowners mostly use credit cards, home-equity credit lines or cash to pay for their pools, HVAC systems, additions and roofs. Mr. Garrity wants to see 95 per cent use the kinds of loans Financeit provides, similar to levels in homes and cars. His company makes more such loans in home improvement than any specialty financier in Canada.

Now, Toronto-based Financeit is extending that lead with the purchase of its next largest rival: Simply Group Financial, itself a roll-up of three home-improvement financiers. Financeit, with a $1.5-billion loan book and $1-billion in annual originations, is about 50-per-cent larger than Simply. The combined entity will receive about 300,000 loan applications this year, with Financeit retiring the acquired brands and moving Simply onto its technology, operations and loan-servicing platforms.

“Any time you see a sign or a flyer that says, ‘Don’t pay for six months for a home improvement job,’ it’s probably us,” Mr. Garrity said in an interview. “After this transaction, it will absolutely be us.”

Terms were not disclosed, but an industry observer estimated the deal, announced Monday, is worth between $175-million and $225-million. The Globe and Mail is not identifying the source because they are not authorized to discuss the matter.

CIBC Capital Markets and Macquarie Capital advised Simply and Financeit, respectively, on the deal.

Funding for the deal comes from InterVest Capital Partners, the New York private-equity arm of Kuwait sovereign wealth fund Wafra Inc., which bought Financeit from Goldman Sachs for more than $350-million last year – outbidding Simply in the process. The parties soon began talks about Simply instead selling to its former deal target, Mr. Garrity said.

He portrayed the deal as good news for the tech sector amid a period of huge layoffs, cash crunches and looming failures or fire sales: “There is money available for companies that are growing and producing cash flow; we prove it.”

InterVest’s purchase followed a disappointing stint for Financeit under Goldman’s ownership. Mr. Garrity had started Financeit’s predecessor in 2007 as a peer-to-peer lending service, shifting into point-of-sale financing in 2011. Goldman bought control of Financeit in 2017, as the Wall Street bank made a big move into U.S. consumer finance.

Financeit management thought they would get an opportunity to crack the U.S. market with Goldman’s support. But there was no overlap between its Canadian-focused business and Goldman’s U.S.-centred digital consumer bank, Marcus. Finaceit was owned by Goldman’s asset management group, not the consumer banking group that ran Marcus, and efforts by the Canadian unit to pursue a commercial relationship with its corporate cousin never took off. Financeit abandoned U.S. expansion plans early in the pandemic, while Goldman bought U.S.-focused online consumer financier GreenSky Inc.

Now under new ownership, Mr. Garrity’s goal is for Financeit to become the dominant source of financing for home improvement in Canada, although its opportunity is trickier to pull off than other types of consumer finance. Most home buyers have to take out mortgages given the high cost, while auto giants embed financing offers into the car-buying process through dealerships.

“The whole thing is systematic. That’s very different from the person who shows up at your door with a tool kit to give you an estimate,” Mr. Garrity said.

Financeit provides contractors, retailers and dealers a mobile app they can present to customers alongside their estimates, scanning their drivers’ licence to obtain information needed to make payment-plan loan offers of up to $100,000 on the spot. Its loans are underwritten by Royal Bank of Canada, Sun Life Financial, VersaBank and EQ Bank. The loans are offered through software provider ServiceTitan, through 10,000 dealers with dozens of manufacturers including Carrier, Jacuzzi and California Closets, and to Costco and Home Depot customers.

That makes Financeit – which has expanded at an average rate of 40 per cent annually over the past three years and generated more than $100-million in revenue in 2022 – both a partner and rival with banks that compete in consumer lending with buy-now, pay-later financiers.

But even after adding Simply’s 3,000 dealers, Financeit, will be selling through less than 10 per cent of dealers in its sector, financing a sliver of the $70-billion in annual home-improvement spending in Canada.

“Nobody buys a house without a mortgage or a car without a loan. We think nobody should spend on big-ticket home improvement without putting it on a monthly payment plan,” Mr. Garrity said, adding his plan is to keep looking for acquisitions while growing the core business. “We have a lot of work to do.”