M&A Outlook: Opportunities Increase for Non-Bank Institutions

Macroeconomic headwinds hindered mergers-and-acquisitions activity in the equipment finance industry last year, according to Jim Jackson, Co-CEO of The Alta Group and leader of its M&A Advisory Practice. In a recent article in the Monitor, he provides an overview of 2023 and what to expect this year.

Despite some notable transactions, there was a continued challenge posed by economic factors ranging from inflation to rising interest rates and a possible recession.

“The economic environment that created a dismal M&A market for equipment finance companies in 2022 carried into and throughout 2023, providing a second consecutive year of low activity,” Jackson writes. “Few things are more effective at reducing M&A activity and lowering company valuations than significantly increasing interest rates.”

The equipment finance and leasing industry remains strong nonetheless, he says, as independent and captive finance companies continued to perform well during 2023. Senior leaders of many companies reported record-high originations last year.

2023 M&A Activity Limited

While banks traditionally rank among the strongest buyers of independent finance companies, acquisition activity last year was limited. The 2023 failures of Silicon Valley Bank, Signature Bank and First Republic Bank sent shock waves throughout the banking community, Jackson writes, and served as a wakeup call to closely review investment portfolios for potential risks.

“Many banks shifted priorities and began to focus their attention and resources back to their core offerings in an effort to attract and retain key client relationships that could offer the stability of strong deposit balances,” he notes. “Several banks effectively shut down their buy desks to syndication sources and others took the added step to diminish the efforts of their former full-service equipment finance divisions to a mere product offering at the bank.”

M&A Opportunities for Non-Banks

Independent equipment finance companies continue to be attractive acquisition targets as they generally provide for an above-average, risk-adjusted return over the long term. Those that properly structure credit and pricing, have a deep knowledge of the underlying assets they finance and understand how their customers will perform in both good and bad economic cycles will generally outperform the rest of the industry players, Jackson writes.

“With the majority of the banks sitting on the sidelines, at least in the near term, and the economy sending mixed signals, I believe this is an excellent opportunity for non-bank financial institutions to look opportunistically at acquisitions,” he says. “Large strategic independent finance companies, captive finance companies, private equity firms, and family wealth institutions—who are generally priced out of the market as potential buyers when banks are active—could become compelling bidders.”

Wait and See

The continuing issue in 2024 is that prices remain high for goods and services, and while many hope for a soft landing, it hasn’t happened yet.

“Given this uncertainty, it is understandable that potential buyers and sellers would be content to sit on the sidelines and take a wait-and-see attitude toward where the economy is headed,” Jackson writes. “Those buyers that take a more measured approach to seeking out strategic opportunities to acquire companies that can provide them with strong management teams, equipment knowledge and expertise, and a strong customer base will be the winners in the long run.”

For the full article, click here.

Jim Jackson has more than 30 years of experience in the equipment leasing and financing industry. He and his colleagues on The Alta Group’s global M&A team can assist clients with the following solutions:

• Buy-side and sell-side advisory services.
• Due diligence.
• Funding and capital strategies.
• Lift-out teams.
• Portfolio sales.
• Valuation services.

Reach out to our team to learn more about these services.