By Jim Jackson


 Timing is important when selling a company, as we discussed previously in our M&A blog series. Preparation is equally critical for success. What can sellers do to make equipment finance companies more attractive to the right kind of potential buyers? Jim Jackson, leader of The Alta Group’s M&A advisory practice, offers his insights based on participation in a panel discussion at a recent NEFA conference.


What are the most important steps in preparing a company for sale in the equipment financing industry? In reviewing recent mergers and acquisitions (M&As) involving equipment leasing businesses, banks and other financial services companies, here are some key considerations.

First, take a close look at your senior management team. This is essential because buyers are heavily influenced by the perceived quality, experience and integrity of the seller’s top executives.  To prepare for an eventual acquisition, sellers should strive to create and retain a senior management team that has demonstrated success through both good and bad economic cycles.

Buyers will also view the senior management team as a possible source of stability and continuity in the event that the owner leaves unexpectedly shortly after the sale.  It is wise to designate one or two senior managers as possible successors to the President or CEO who could guide the company during any transition periods.

Sellers should be able to provide audited financial statements based on conservative accounting policies to a potential buyer.  The need for these statements seems like common sense, but some sellers do not realize the value of audited statements prepared in accordance with generally accepted accounting principles.

Lean, too, on the conservative side when generating financial statements. It is better to use conservative assumptions for credit losses and charge-off policies, initial direct cost assumptions, and residual-setting policies than to risk providing aggressive assumptions and numbers that could make potential buyers suspicious.

Further preparation should include developing and documenting sound policy and procedure manuals. The manuals should clarify key accounting, pricing, credit approval, documentation, residual setting and end-of-term policies and procedures.  Such manuals provide even more evidence of company stability.

Additionally, consider your company’s financial reporting systems. Does your current technology generate timely financial reporting information and support adequate financial analysis? Buyers today will want this to be demonstrated. They may specifically ask if your platform can provide a relatively easy, quick, and error-free conversion of data to the buyer’s technology platforms.

Sellers should also create and maintain detailed annual budgets and long-term financial forecasts that provide the buyer with a roadmap of past, current and anticipated future performance. As part of this effort, sellers should be able to demonstrate portfolio performance statistics and trends.   That means that if you operate under an originate-and-sell financial model, you will need to also request periodic portfolio performance reports from funding sources.

It’s also imperative to have an attorney who specializes in the equipment leasing and finance industry to review contract documentation. Many M&A deals have fallen apart when a buyer was uncomfortable with a seller’s contracts or documentation process.  Ideally, the attorney will help to ensure that transaction language protects the company’s best interests and at the same time, does not create undue burden on the lessee or borrower to perform.

What other corporate qualities are buyers seeking to find? Preferably, the seller should be able to share with a potential buyer a history of rational and solid growth year-over-year in both new originations and profitability.  Any abnormal activity or significant variances should be fully explained to the buyer, detailing why this occurred and what steps were taken to ensure that the problems are unlikely to repeat themselves.

Buyers also appreciate seeing a differentiated product offering or a service that distinguishes the seller from its competition. This is valuable since a differentiated product or service creates a barrier to exit, making it more difficult for customers and vendors to switch to a competitor.  This also helps to prevent a company from having to compete in the marketplace solely on the basis of price.

The preparations noted above may affirm what you already know, but these key takeaways provide an M&A checklist and summary of buyer assurances needed:

  • a strong senior management team with demonstrated success
  • designated successors in the event of the owner’s departure
  • audited financial statements and conservative accounting policies
  • sound policy and procedure manuals
  • strong financial reporting systems with data conversion capabilities
  • detailed annual budgets and financial forecasts
  • legal review of documentation by an industry attorney
  • solid growth, with any variances explained
  • a differentiated product offering or unique service

The goal is to position your company as favorably as possible prior to sale by making any necessary improvements that are within your capability. This will assist the buyer in its M&A due diligence.

Look for upcoming posts in this series on how to attract the “right” kind of buyer, and how to structure a deal successfully.

Email if you would like to schedule a consultation or if you have specific M&A questions.

The Alta Group’s M&A practice has assisted more than 200 organizations in M&A transactions over decades, also providing valuations and due diligence expertise.  Last year the practice, headed by both Jackson and Bruce Kropschot, had an active role in four major domestic transactions within the equipment leasing and finance industry.