Entrepreneur Steve Hudson launches SPAC to shop for a Canadian financial services company

Entrepreneur Steve Hudson is out hunting for a Canadian financial services company, armed with a $1-billion war chest, an artificial intelligence-based strategy and a New York Stock Exchange listing.

Mr. Hudson, who founded and sold three successful Toronto-based financial ventures, closed a US$200-million initial public offering for Pinnacle Acquisition Corp. in August. The company, known as a special acquisition corporation, or SPAC, has lined up bank loans to back a potential investment of up to $1-billion.

Pinnacle executives are now scouting sectors such as niche lending and consumer finance for businesses that can be retooled. In an interview, Mr. Hudson said his next venture will follow the same game plan used in the recent past at Element Financial Corp., a $9.8-billion public company, and ECN Capital Corp., which sold over the past five years in two transactions that totalled $3.4-billion.

Foreign investors optimistic about Canada’s changing investment environment

Pinnacle plans to buy a business such as a lender, shift to an asset-light balance sheet by offloading loans to institutions such as life insurers, and use AI to automate previously manual processes such as approving and servicing loans.

“My experience with AI shows it represents a revolution in how credit companies can operate,” Mr. Hudson said. He said AI can be used to lower loan losses, and improve productivity and profit margins.

A Toronto native and former accountant, Mr. Hudson built Newcourt Credit Group into the world’s second-largest non-bank financial company and sold it to rival CIT Group Inc. for $2.4-billion in 1999. ECN Capital, his last venture, loaned money to buyers of manufactured homes and recreational vehicles.

Pinnacle’s targets include financial businesses currently owned by private equity funds. Mr. Hudson said many managers are looking for a way to exit companies they have owned for many years “and have no obvious path to liquidity.”

Pinnacle is also looking for opportunities to carve out a business from a large company looking to simplify its structure. That approach built Element Financial from a global car and truck finance platform that was sold by General Electric Co. more than a decade ago.

Investment bankers from CIBC Capital Markets, BMO Capital Markets and RBC Capital Markets are advising Pinnacle as it looks to make an acquisition.

The SPAC structure gives Mr. Hudson until May, 2028, to purchase a business. If Pinnacle hasn’t done a deal by then, investors get their money back.

Defence, space firms turn to SPACs as investor appetite soars

Pinnacle decided to list on the NYSE, rather than the Toronto Stock Exchange, because SPACs enjoy a wider and more enthusiastic following among U.S. investors than with a Canadian crowd, Mr. Hudson said.

So far this year, 148 SPACs have raised US$26.1-billion on U.S. markets, the largest amount of financing seen in the sector in five years.

Last November, Canadian quantum computer developer Xanadu Quantum Technologies Inc. went public on the Nasdaq and Toronto exchanges by teaming up with a SPAC in a US$3-billion transaction.