One of the most recent companies to make the transition from privately owned to publicly traded is Enact Holdings Inc. ACT, a Raleigh, North Carolina-headquartered provider of private mortgage insurance. Enact was founded in 1981 and was a wholly owned subsidiary of Genworth Financial Inc. GNW.
Enact’s shares opened for trading on Sept. 16 at $20, compared to the $19 per share of the initial public offering that saw 15.3 million shares sold, and made its stock market debut with a $3.26 billion valuation.
In this Benzinga interview, Enact’s President and CEO Rohit Gupta offers his view on this new chapter in his company’s journey.
Q: Why did you decide to take the company public?
Gupta: This is good for Genworth and good for Enact – we were able to create separation between the two companies. We have done very well under our 100% ownership by Genworth in the past and we have delivered very strong results coming out of the global financial crisis – and even during the pandemic, our results have been very strong.
But there were some pressures on our business due to our ownership by Genworth and its leverage, which has been high for the past several years. As a result, our credit ratings – which are very important for us as a financial services company – have been pressured compared to our competitors.
Also, we operate in a cyclical business in mortgage insurance – so when times are good, we have very good results and generate a lot of capital for our shareholders. But during tough times we need access to capital, either from debt or equity markets. By doing the IPO, it opens an extra access to capital for our business by actually having direct access to equity markets.
Q: In April, Genworth terminated a proposed acquisition by China Oceanwide Holdings Group Co. that was first proposed in 2016. Did that play any role in your decision to go public?
Gupta: A portion of our customers had concerns with our business being bought by a private Chinese company. The Oceanwide transaction was terminated back in April of 2021 and that started becoming more of a tailwind in terms of the customers who did not feel comfortable doing business with us started opening the doors.
And now with an IPO by using an independent board – eight out of our 11 board members are independent directors – and having a new brand, as well as having confidence that all three credit rating agencies are going to upgrade our ratings, that created the right structure for our company and gave us an ability to unlock our true potential as a company.
Q: Speaking of the ratings agencies, how did they react to your going public?
Gupta: Since we conducted the IPO, we have already received upgrades from Moody's and Fitch and we expect S&P to take action within the next few days. Fitch upgraded our ratings by two notches, so we are now BBB+ and on Moody's we are now Baa2. We have seen a very positive response from our customers.
Q: Enact is one of the latest companies within the mortgage space to be going public. In your opinion, why are so many companies within the mortgage space deciding to travel this route?
Gupta: There are different reasons for different companies within the mortgage ecosystem, which is pretty broad and wide in terms of participants, their business models and the value proposition to shareholders.
A lot of mortgage originators have gone public in the last year or so because valuations were really good and it also gives those mortgage banking companies direct access to equity capital. You saw a lot of companies trying to go public in the third and fourth quarter of 2020 and early this year. And you have seen some fintech companies in mortgage finance go public because fintech companies get a validation on their valuation and are able to raise fresh capital for growth.
Our business is different. There are only six mortgage insurance companies in the U.S. and the other five are our peers who already went public – we were the only company that wasn't public.
Q: What's on the company's agenda for the remainder of this year and going into 2022?
Gupta: We have a very broad and diverse customer base. In 2020, we ended the year with 1,800 active lender partners, which includes 19 out of the top 20 originators in the country. For all of the customers who gave us business in the year 2020, 92% of them have given us business every year for the previous five years.
When we think about moving forward, we are going to leverage that customer base and break into new accounts using our ratings. We think that the housing market is on a very strong footing – and while home prices have been going up higher than normal times, we think that it is driven by fundamental demand and not speculation. So, we intend to leverage this momentum in the housing market.
Lastly, I don't want to forget that we are still recovering from the pandemic’s increase in delinquencies. We are focused on bringing those delinquencies to the right conclusion by helping consumers stay in their homes through this difficult time, and then transitioning into 2022 with more confidence on the pandemic recovery side.
Photo: Courtesy of Rohit Gupta.
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