Accredited Home Lenders, a struggling subprime mortgage lender, said it agreed to be acquired by private equity firm Lone Star for $400 million.
The terms value Accredited Home at $15.10 a share, a 9.7% premium over its Friday closing price on the Nasdaq but 72% below where it traded one year ago.
Accredited Home, which cut 1,300 jobs in the first quarter, is one of many providers of home loans to people with poor credit histories that have struggled with rising losses and mounting defaults. Dozens of subprime lenders, including New Century Financial , have quit the industry or gone bankrupt in the last year.
The proposed sale comes two months after San Diego-based Accredited Home said it was exploring strategic options, including a merger. It recently obtained a $230 million term loan from hedge fund Farallon Capital Management.
"It's not a surprise, given the state of the industry," said Matt Howlett, an analyst at Fox-Pitt Kelton in New York. "It needed to partner with someone with a diversified source of funding. Private equity firms are gravitating toward subprime in anticipation the industry will turn." Howlett called the valuation "fair."
Dallas-based Lone Star said it has raised $13.3 billion since its 1995 founding. Private equity firms typically buy companies, restructure their businesses, and sell them.
"An alliance with a strong partner is, we believe, the best alternative to ensure the long-term success of the company," Accredited Home Chief Executive James Konrath said in an e-mail to employees. "Accredited can go forward with its business as before, but with greater access to capital and resources."
Top Accredited Home executives will keep their current roles. The transaction is expected to close in the third quarter.
Representatives for Accredited Home and Lone Star did not immediately return calls seeking further comment.
Accredited Home cut 1,300 of its 4,200 jobs in the first quarter, when lending volume sank 47% from a year earlier and delinquencies tripled. It said results were also hurt by its purchase last October of Los Angeles subprime lender Aames Investment.
Shares of another subprime lender up for sale, NovaStar Financial , rose Friday.
"It's the end of the specialty mortgage player, for now," Howlett said. "You need a big balance sheet to compete, and diversified sources of funding. It's everything the pure subprime lenders don't have."
Bear Stearns, Friedman Billings Ramsey Group, Houlihan Lokey Howard & Zukin and the law firms Dewey Ballantine LLP and Morris, Nichols, Arsht & Tunnell LLP represented Accredited Home. Piper Jaffray & Co. and the law firm Sullivan & Cromwell LLP represented Lone Star.