First American Looks to Consolidate

Acquisitions within the financial services industry continue to heat up, and not only within the lending space. Title insurer and business information provider First American (FAF) this week offered to acquire the issued and outstanding common stock of its publicly traded subsidiary, First Advantage (FADV). First American indirectly owns about 74% of First Advantage’s common stock. The offered purchase would push the company’s ownership to 100%. Under the fixed exchange ratio within the offer, shareholders receive a portion of First American common stock for each share of First Advantage common stock in a 0.5375-1 ratio. “Acquiring the minority interest in First Advantage will enhance our financial flexibility, reduce organizational complexity and provide greater overall operational efficiency,” said Parker Kennedy, chairman and CEO of First American, in a media statement Monday. Risk mitigation provider First Advantage acknowledged receipt of the offer later the same day and said First American’s proposal faced consideration by a committee of the company’s board of directors. “First American’s proposal is subject to confirmatory due diligence, the negotiation of a mutually acceptable definitive acquisition agreement and the receipt of all necessary stockholder and regulatory approvals,” First Advantage said in a statement. First American’s goal is to split off its financial services business, including title and specialty insurance. Fitch Ratings, which took no ratings action on the announcement, said the transaction should simplify the legal and organizational structures of the companies as well as improve corporate governance alignment as First American moves forward with its spin-off plans. “Fitch recognizes that the information solutions business segment has acted as a shock absorber during this recent downturn in the real estate cycle,” Fitch said in a statement. “The agency will evaluate how the organizational and capital structure on a post spin-off basis when this event occurs to determine if the current ratings adequately reflect a post spin-off structure.” Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.