Capital One Financial Corp. agreed to acquire the health care lending business of General Electric Capital Corp. for about $9 billion, marking a new direction by the firm best known for its credit cards.
The move will considerably expand Capital One’s position in the booming health-care industry, where it is currently a small player. Both companies announced Tuesday they have signed a definitive agreement for the sale.
Earlier in April, GE announced that it would sell most of the assets in the GE Capital subsidiary as the company wanted to streamline its business to focus more on industrial manufacturing - making large, complicated equipment for other companies. The company looks to shed financial service businesses not linked to its core industrial, aviation, and energy-related businesses.
Since long, investors had urged the Fairfield, Connecticut, company to get rid of its finance unit, even though it has been doing well, because it is difficult for investors to understand and it carries risk.
The deal includes GE Capital Corp.’s health care financial services unit, which provides capital financing to U.S. health care companies, sponsors, investors and developers across various healthcare sectors such as hospitals, medical-device makers, outpatient services, pharmaceuticals and others.
McLean, Virginia -based Capital One said the deal includes about $8.5 billion of health care-related loans. Capital One will pay a 6 per cent premium on the par value of the GE unit’s receivables as of June 30.
Subsequently, GE agreed with another unidentified buyer to sell about $600 million of healthcare finance unit's real estate equity investments.
The companies said they expect to complete the deal by the end of this year. Capital One said the management team from GE’s health care finance business will remain with the business. The chief executive of the heath care division of GE Capital, Darren Alcus, will join Capital One’s health care finance business.
Capital One believes that the acquisition will strengthen its existing health care lending business and also provides a strong platform for future growth and returns.
The deal marks Capital One’s largest since the 2008 financial crisis. The company purchased ING Direct USA for about $9 billion in 2012, building its deposit-taking bank into one of the largest online lenders in the nation.
Credit Suisse and Wells Fargo Securities acted as exclusive financial advisers to Capital One, and Wachtell, Lipton, Rosen & Katz acted as legal adviser to Capital One.