Nesto buys Canada’s third-largest non-bank mortgage lender

Online mortgage lender Nesto Inc. is expanding into commercial mortgage lending with the purchase of Canada’s third-largest non-bank mortgage lender CMLS Financial Ltd.

Montreal-based Nesto announced Friday that it has acquired 100 per cent of CMLS, creating one of the largest online mortgage lenders in Canada. The deal was first reported last month by The Globe and Mail.

Financial details for the transaction were not disclosed, but the deal was supported by several of Nesto’s large institutional investors including Sagard-backed Diagram Ventures, Portage, National Bank of Canada’s venture capital arm NAventures, IGM Financial, BMO Capital Partners, Fonds de solidarité FTQ and Fondaction.

Nesto was co-founded in 2018 by chief executive Malik Yacoubi, along with founders Damien Charbonneau, Karim Benabdallah and Chase Belair. The online mortgage brokerage service automates much of the application and underwriting process, offering lower rates and quicker turnaround times for approvals. It also allows clients to upload mortgage documents using a mobile device.

By 2022, the company had raised more than $167.5-million over three rounds of financing, including one round that saw Sagard acquire a 20-per-cent stake in Nesto in 2021, followed by Power Corp.’s IGM Financial obtaining a minority stake in 2022.

Now, the combined entity has more than 1,000 employees across 10 offices and about $60-billion in mortgages under administration.

“Combining our strengths will allow us to better serve Canadians and set new standards for the mortgage industry,” Mr. Yacoubi said. “CMLS is really strong in the rest of Canada, and this will allow the to expand more in Quebec – and vice versa.”

Both companies will continue to maintain their separate names and branding, including CMLS Asset Management and CMLS’s Intellifi – a company that offers a white-label service. All CMLS group executives and employees will transition to working for the combined entity, and CMLS shareholders will gain an equity stake in the new company.

Mr. Yacoubi said in an interview with The Globe that he wasn’t on the hunt for a large acquisition when he first launched Nesto – but as the business began to rapidly grow organically he began to keep an eye out for opportunities in the market.

Then over a year ago, Mr. Yacoubi met Chris Brossard, the then chief executive of CMLS.

“CMLS is a really well established company in Canada, and they were already in the commercial space and we were not so I was curious to learn more about that line of business – but our discussions at first were not necessarily about how should we do a merger or an acquisition but more on how could we collaborate,” Mr. Yacoubi said.

“Then at some point, I asked should we do something bigger together. It was always a very natural and easy-going relationship.”

CMLS first launched in 1974 with an office in Vancouver. Today, it has grown across the country and has eight locations, with a dominant presence in Western Canada. Earlier this year, the lender shuffled its top executives as Sam Brown moved into the role of president and chief executive of CMLS, and CMLS Asset Management. Mr. Brown took over from Mr. Brossard, who was appointed executive chair of the board.

Mr. Yacoubi said he looks forward to working alongside Mr. Brown, as they begin to combine operations. Mr. Yacoubi will take on the role of chief executive officer of the new entity while Mr. Brown will continue as president and head of the commercial division.

National Bank Financial acted as financial adviser for Nesto on the deal.