Independent equipment finance companies continue to be prime targets for mergers and acquisitions, report The Alta Group’s Bruce Kropschot and James Jackson in the March/April Monitor. The acquirers? Mostly banks, Japanese investors and private equity firms – though an alternative funder was the buyer in at least one significant transaction in the past year.
The article covers recent notable M&As in the industry, prospects for the year ahead and factors that could influence company valuations and M&A activity one way or the other. These mitigating factors include changes in interest rates, stock market trends, unemployment rates, liquidity and access to credit, portfolio quality and political uncertainty.
Equipment leasing and finance in the U.S. has been riding a robust M&A cycle since 2015 and the number of quality independents that are available has been shrinking. So, how long will this cycle last?
“Current levels of M&A activity and future economic indicators generally point to another successful year of acquisition activity in 2019. Baring the occurrence of the potential risks outlined earlier in this article, we expect the M&A market to remain active during 2019 and for valuations of quality equipment finance companies to remain strong,” they write.
“The decision for a company to remain independent or to seek a larger acquirer is an important one. Independents must continue to focus on the business and economic environment to determine when the benefits of being part of a larger organization outweigh the freedoms and flexibility of remaining an independent,” Bruce and Jim add.
Their full article is available on pages 32-33 of the March/April Monitor and online for subscribers.
Jim is managing director and leader of Alta’s M&A Advisory Practice and Bruce is its senior managing director. Their reporting is backed by decades of experience advising buyers and sellers in the equipment finance industry and providing due diligence, funding management and capital raising services. Another key member of the Alta M&A team is Patricia Voorhees, director.
They have played important roles in a number of publicly announced deals. These include initiating the transactions and serving as exclusive financial advisor to Fuyo General Lease in its investment in Pacific Rim Capital, to Fleet Financing Resources in its acquisition by Marlin Business Services, and to Intech Funding Corp in its acquisition by Verdant Commercial Capital.
NEFA conference Video clip of Jim speaking about building enterprise value.
How does the equipment finance industry compare with others? The banking sector had a strong first quarter and is seeing increasingly bigger M&As, according to Integrated Legacy Solutions (ILS) reporting May 8 based on data compiled from the Federal Reserve System. The largest deal that closed Q1 was Synovus Financial’s acquisition of FCB Financial Holdings for $2.9 billion. “With the merger of FCB, Synovus has now become a top five regional bank by deposits in the Southeast, with approximately $45 billion in assets, $37 billion in deposits, $35 billion in loans,” ILS said.
That deal will be well eclipsed if the proposed merger of regional banks BB&T and SunTrust goes through this year. “The BB&T Corp.-SunTrust Banks Inc. $66 billion megadeal has been touted as the largest bank transaction in at least a decade and potentially transformative for the industry,” notes writer Richard Craver in the April 22 Winston-Salem Journal. “The combined bank would be the sixth-largest in the U.S., with $442 billion in total assets — within striking distance of US Bancorp to be at the top of the second tier of super-regional banks.”
U.S. and Global M&As
The finance sector as a whole also is in an active cycle for M&As. In April, FactSet reported in April that finance was among the 11 major sectors they track that had posted M&A gains in Q1 2019 compared with Q1 2018. “Over the past 3 months, the sectors that saw the biggest increases in M&A deal activity, relative to the same three-month period one year ago, [were]: Commercial Services (552 vs. 510), Distribution Services (193 vs. 157), Consumer Services (234 vs. 203), Finance (436 vs. 410), and Health Services (165 vs. 151.”
Nine other major sectors they track showed a drop off in M&As, including utilities (48 vs. 71), communications (36 vs. 53), industrial services (132 vs. 144), energy minerals (35 vs. 46), and producer manufacturing (192 vs. 201).
Overall, though, the U.S. M&A market has been trending strong so far in 2019 with some caveats. Reuters reports it is the size of the deals versus their numbers that is making the difference. “In contrast to Europe, the United States, which is the largest M&A market, got off to its strongest start since 2000, with $489.52 billion dollars in announced deals, up 9.4 percent compared to a year ago. The number of deals was down by 40 percent year-over-year, however, indicating that big-ticket transactions were the main driver,” according to the article March 28.
Globally the M&A news in Q1 was not as bright. M&As were down 17%, according to Reuters, which attributed the sluggishness to concerns about an economic slowdown and fears of a no-deal Brexit in Europe. However, a single quarter of data can only tell so much about longer term trends of significance. By mid-year we should have a much clearer view of how 2019 will compare with the strong M&A activity reported by J.P. Morgan and others for 2018.