3 Developments Driving Equipment Finance M&As

The Monitor Funding Source Issue includes Jim Jackson’s annual reporting on merger and acquisition (M&A) trends affecting the U.S equipment leasing and finance industry. It’s always an interesting read as he reflects on the year that has passed and anticipates likely scenarios for the year ahead. This year’s article is especially insightful as he discusses the pandemic’s impact and possibilities for 2021.

Jackson is co-CEO of The Alta Group, heads its M&A advisory practice and is vice president of the National Equipment Finance Associate (NEFA). He has an expansive view of what’s happening as well as hands-on experience helping buyers and sellers through the process.

His deadlines for The Monitor M&A article are early each year. That means last year’s article was finished before COVID-19 derailed planned M&As for much of 2020. He had anticipated the potential for this, however, noting black swan events could include “[t]he ability for the new coronavirus, COVID-19, to spread throughout the world.” This year’s draft was delivered in February, with recovery in sight but still many “what ifs.”

Unexpected fallout from the pandemic or other events remains a possibility. But Jackson cites three hopeful trends shaping industry M&As in 2021.

M&As are primed for a rebound.

Jackson predicts a much better year for equipment finance M&As in 2021, especially in the second half, based on current levels of activity and economic indicators.

“M&A activity is primarily driven by economic factors, including, but not limited to, interest rates, stock market trends, unemployment rates, liquidity and access to credit, portfolio quality and political uncertainty. Based in part on the current economic climate, several attractive companies are currently considering a sale or are being offered for sale, and a number of qualified buyers continue to show interest in acquiring quality finance companies,” he writes.

Since turning in the draft in February, in fact, there has been additional M&A activity in the industry. Notable transactions in 2020 and to date in 2021 are outlined in the chart above.

While most economic indicators point to an active year for industry M&As, Jackson also mentions the potential for headwinds. This could include any negative repercussions from President Biden’s tax plan or government stimulus. Additionally, it seems clear that the active M&A cycle the industry has been in for some time is now in its latter stages, he says.

Regional banks are seeking mergers.

Noting several regional bank mergers announced in 2020 and 2021, Jackson anticipates more based on their continued need to expand and achieve scale to compete with national rivals.

“Since many of the regional banks in the country offer equipment financing, it will be interesting to see what impact these mergers will have on the industry,” he adds. “It seems only logical that we will continue to see experienced equipment finance lift-out teams emerge from these bank mergers as industry veterans elect to locate new bank sponsors or otherwise exit to create their own independent finance companies to serve a specific niche in the industry.”

Valuations are strong for quality targets.

At several points in the article, Jim notes that valuations have, in general, been quite competitive for quality targets in the equipment finance industry. He details recent transactions and M&A trends in his latest Monitor article.

Jim Jackson and his advisory team have decades of experience arranging hundreds of equipment leasing and specialty finance business M&As. They provide buy and sell side advisory services, fintech expertise, formal valuations, and can locate funding sources and additional capital for your company. Learn more about Alta’s M&A advisory services.