The Real Deal New York

Big Four no more? Fidelity is buying rival Stewart for $1.2B

Title insurers in NY underwrote $1.1B in 2016
By E.B. Solomont | March 19, 2018 02:00PM

Raymond Quirk

The “Big Four” title insurance players are about to become the Big Three.

Industry heavyweight Fidelity National Financial has signed an agreement to buy rival Stewart Information Services Corp. for $1.2 billion in cash and stock, the company said Monday. Pending shareholder and regulatory approval, the deal could close by the second quarter of 2019.

If approved, Fidelity will emerge as the nation’s largest title company several times over. Before the merger, it reported $7.2 billion in revenue and controlled 33 percent of the national market, according to industry estimates.

In a statement, Fidelity CEO Raymond Quirk said the merger would create “significant operational efficiencies,” including savings of up to $135 million. He added: “We are very familiar with Stewart in the marketplace and see multiple areas where we can assist and accelerate Stewart’s growth plans.”

In 2017, Stewart reported revenue of $1.9 billion, down from $2.1 billion in 2016. In recent years, activist investors have been vocal about the company’s declines. Last year, Stewart’s board began looking at “strategic alternatives” for the company in 2017 and determined that merging with Fidelity was the best option, chairman Thomas Apel said Monday.

Fidelity — whose brands include Fidelity National Title, Chicago Title, Commonwealth Land Title and National Title of New York — had revenue of $7.2 billion in 2017 with $1 billion in earnings.

Fidelity said it would save $135 million by acquiring Stewart, even after assuming its $109 million in debt.

Nationally, title is a $15 billion industry that’s been dominated by Fidelity along with First American, Old Republic and Stewart. The “big four” control 90 percent of the market, according to data from the American Land Title Association.

In 2016, New York title companies underwrote $1.1 billion worth of premiums — about 10 percent of the national pie that year.

In New York City, Stewart provided title for 42 of the top 1,000 priciest deals between December 2014 and June 2017, according to an analysis by The Real Deal. Those deals were valued at $2.73 billion. Fidelity provided title for 94 of the top 1,000 deals during the same time, in deals valued at $18.38 billion.

The combined company will have around 44 percent market share, according to John Campbell, an analyst at Stephen’s, the investment bank. Campbell thinks that’s “doable” from a regulatory standpoint, he wrote in a note to investors Monday. “Recall, title insurance is already a heavily regulated industry with pricing, in many states, often set by regulators.”

New York title companies have faced scrutiny from state legislators over their marketing, which include notoriously lavish parties, dinners and entertainment.

Starting Feb. 1, the Department of Financial Services imposed strict regulations that ban such “inducements” in exchange of business. But last month, the industry’s trade group (and two title companies) filed a lawsuit challenging the rules and arguing that the rules would result in companies going out of business. Last week, the state Senate — which has sided with title companies on the issue — included language in the state budget to override the DFS rules.