ZAIS Financial To Acquire GMFS

(RTTNews) - ZAIS Financial Corp. (ZFC) announced Wednesday that it has entered into a definitive agreement to acquire GMFS, LLC.

GMFS is a privately-owned mortgage company that originates residential mortgage loans, primarily in the southern U.S., and holds the servicing rights on those mortgages. Founded in 1999, GMFS is headquartered in Baton Rouge, LA and is licensed as a mortgage banker in 29 states. In 2013, GMFS originated approximately $1.4 billion in mortgage loans, generating net income of approximately $14.7 million. At December 31, 2013, GMFS held a portfolio of mortgage servicing rights or "MSR" of about $2.2 billion in unpaid principal balance.

The purchase price will consist of cash payable at closing, estimated at approximately $61 million, two contingent $1 million deferred premium payments payable in cash over two years, plus potential additional consideration based on future loan production and profits which will be payable over a four year period if certain conditions are met. The cash payable at closing will reflect the actual market value of GMFS's MSR portfolio, which was $30.1 million at June 30, 2014 and the actual value of GMFS's net tangible assets at closing. The $2 million of deferred premium payments is contingent on GMFS remaining profitable and retaining certain key employees.

The additional contingent consideration is dependent on GMFS achieving certain profitability and loan production goals and is capped at $20 million. Up to 50% of the additional contingent consideration may be paid in common stock of the Company, at the Company's option. The Company intends to fund the closing payment from existing cash and the sale of non-agency RMBS holdings.

The acquisition is expected to be slightly dilutive to earnings in 2014, primarily due to transaction expenses, and accretive to earnings beginning in 2015.