After a Second Consecutive Year of Low M&A Activity, 2024 May Bring Buying Opportunities For Non-Bank Institutions

by James Jackson Mar/Apr 2024
James Jackson from The Alta Group explores the equipment finance M&A market for 2023 and provides an outlook for the year ahead. With banks sitting on the sidelines for the second year in a row, acquisition opportunities abound for non-bank institutions.

James Jackson,
The Alta Group

As I predicted in this space last year, M&A activity in 2023 had its share of challenges with a limited number of transactions taking place. 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.

Few things are more effective at reducing M&A activity and lowering company valuations than significantly increasing interest rates. Most of us can agree that the Federal Reserve was late in its efforts to combat inflation, waiting until March 2022 to start raising rates. Federal governors were content to blame inflation on the fact that the economy needed to adjust to supply chain issues and ignored the freight train that was coming down the track. Back on its heels, the Fed then scrambled to increase interest rates seven times during 2022, bringing the federal funds target rate from 0% to .25% in March 2022 to 4.25% to 4.5% by the end of 2022.

According to the Bureau of Labor Statistics, the 2022 year-end inflation rate stood at 6.5%, down from the record June 2022 level of 9.1%, but still well above the Federal Reserve’s target inflation rate of 2.0%. The Fed would continue to raise rates four more times throughout 2023, increasing the federal funds target rate to a 22-year record high of 5.25% to 5.5%. These increases largely helped to reduce the inflation rate to 3.4% for 2023, still well above the targeted levels.

These economic issues combined with the geopolitical risks associated with the United States’ involvement in wars in both the Middle East and Europe added to the concerns for a possible recession.


The 2023 failures of Silicon Valley Bank, Signature Bank and First Republic Bank sent shock waves throughout the banking community and served as a wakeup call to all banks to closely review their investment portfolios for potential risks. While not necessarily the core cause of the failure of these institutions, the rapid rise of interest rates led to the unintended consequence of declining Treasury investment portfolios traditionally thought to be a safe haven. Nervous depositors began to withdraw their account balances, and the banks lacked the liquidity needed to unwind their positions and return the cash.

Shortly thereafter, many banks shifted priorities and began to focus their attention and resources back to their core offerings to attract and retain key client relationships that could offer the stability of strong deposit balances. 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.

Given their resources, scale and cost of funds advantages, banks are traditionally one of the strongest buyers of independent finance companies. They generally have the lowest investment hurdle rates and commonly can afford to pay the highest prices to sellers while also offering the greatest opportunities for growth and profitability post-sale. As such, with the banking industry essentially sidelined from the M&A market for 2023, the level of acquisition activity was limited.


Despite this economic environment, a handful of notable equipment finance transactions took place throughout 2023. In March of 2023, Kentucky-based Republic Bancorp completed its merger with Cincinnati-based CBank and its wholly owned subsidiary, Commercial Industrial Finance, based in St. Louis. According to the press release, Scott Hawkins, president and CEO of Commercial Industrial Finance (which has since been renamed Republic Bank Finance), will continue to run this business for the bank. Republic acquired the outstanding stock of CBank in an all-cash transaction for approximately $51 million.

In March of 2023, Flagstar Bank, a subsidiary of New York Community Bancorp, entered an agreement with the FDIC to purchase deposits and loans from New York-based Signature Bridge Bank. As part of the purchase, Flagstar paid $2.7 billion to acquire $12.9 billion of Signature’s loans, which included $6.6 billion of specialty equipment finance leases and loans from Signature Financial.

In April of 2023, Brookfield Infrastructure Partners, a global company that owns and operates long-life assets in the utilities, transport, midstream and data sectors, announced that it would acquire publicly held Triton International in a cash and stock transaction for approximately $4.7 billion in equity value. Triton claims to be the largest lessor of intermodal freight containers with a fleet of more than 7 million units and provides acquisition, leasing, re-leasing and sales of containers. According to the press release, the acquisition provided Triton shareholders with consideration of $85 per share, a 35% premium to the closing market share price the day prior to the announcement.

Some notable service providers to the industry merged in 2023. In May, Reston, VA-based LeaseAccelerator acquired the LeaseController product from its developer and owner Deloitte & Touche. LeaseController is a software service designed to help clients track their real estate and equipment leases. In addition to the platform, LeaseAccelerator brought on approximately 30 former Deloitte professionals connected with the LeaseController product offering.

Also in May 2023, affiliates of Norwalk, CT-based North Mill Equipment Finance provided a substantial capital investment to form BriteCap Financial. The two companies will operate independently from one another. BriteCap employs both direct and indirect sales models to offer small business financing solutions. Terms of the transaction were not disclosed.

In July 2023, Beaverton, OR-based Quiktrak, a provider of collateral inspection and verification services, was acquired by RCap Equity Partners and merged with Houston-based Douglas Guardian Services. RCap acquired a majority stake in Douglas Guardian in January 2020. Douglas Guardian was founded in 1991 and provides floor plan and leased equipment inspection services and other collateral services throughout the U.S. and Canada. According to the press release, the RCap team, in conjunction with company management, will seek to create value through operational improvements, growth initiatives and acquisitions. The terms of these service provider transactions were not disclosed.

In a transaction announced in November 2022, TIAA completed the sale of TIAA Bank in August 2023 to an investor group consisting of funds managed by five private equity firms. The bank was renamed EverBank, and its vendor equipment finance business now operates as a division of EverBank.

In September 2023, Columbus, OH-based Star Leasing, a portfolio company of I Squared Capital that provides trailer leasing and maintenance services, merged with Commercial Trailer Leasing of Roseland, NJ. The combined company plans to operate nationwide and anticipated a fleet size of approximately 55,000 trailers by the end of 2023. Also in September 2023, St. Cloud, MN-based Stearns Bank acquired a majority stake in Contract Capital, which provides custom financing services to managed service providers. Stearns Bank senior management believes the merger will provide an excellent opportunity to provide more depth and diversify the bank’s nationwide lending and equipment financing platforms. Terms of these transactions were not disclosed.

Also in September 2023, a newly formed corporation, 9494-3677 Québec, created by a group comprised of funds managed by Neuberger Berman, Palos Capital and Fintech Ventures Fund, acquired the outstanding shares of IOU Financial with cash for a purchase price of $0.22 per share. IOU is headquartered in Montreal and its North American operations center is in Atlanta. The take-private transaction resulted in the delisting of its shares from the TSX Venture Exchange.

In October 2023, Stonepeak, a New York-based investment firm with approximately $57 billion in assets under management, agreed to acquire Hamilton, Bermuda-based Textainer Group Holdings, one of the largest lessors of intermodal carriers. Textainer has been in operation since 1979 and operates a fleet of more than 4 million units. Under the terms of the agreement, Stonepeak agreed to pay a cash value of $2.1 billion, or $50 per share of Textainer stock. The per-share price represents a 46% premium over Textainer’s closing share price on the day prior to the announcement. According to the company press release, following the completion of the transaction, the privately held Textainer will continue to be led by its president and CEO, Olivier Ghesquiere.

In November 2023, American Industrial Transport, an affiliate of ITE Management, agreed to acquire SMBC Rail Services from SMBC Americas Holdings, a member of the SMBC Group. The transaction is expected to add approximately 50,000 railcars to American Industrial Transport’s fleet and provide them with strong customer relationships and an experienced team of employees. Although terms of the transaction were not disclosed, Sumitomo Mitsui Financial Group expects to record a $560 million after-tax loss on the deal.


Unlike some of their bank-owned counterparts, many independent and captive finance companies continued to perform well in 2023. Despite the continued rise in interest rates over the past two years, the equipment finance and leasing industry remains strong, and senior leaders of many companies have reported record-high originations for 2023. In fact, the Equipment Leasing and Finance Association reported that new business for the companies on its Monthly Leasing and Finance Index (MLFI) increased by 2% in December 2023 from the same month a year ago and increased by 3.9% on a cumulative basis in 2023 over 2022. Adding to the strong industry performance, portfolio quality remains high with the MLFI reporting that receivables over 30 days stood at 2.3% in December 2023, up from 1.8% a year ago, and charge-offs were 0.4%, up slightly from 0.3% for the same period in 2022.

Industry confidence remains relatively weak as we start 2024 with the ELFA’s 24-month confidence index for the equipment finance industry at 48.6 in January 2024, essentially flat from a year ago at 48.5 in January of 2023, and significantly down from 63.8 reported in January 2022. This index, which is designed to reflect a qualitative assessment of industry leaders’ perceptions of current and future business conditions, has been generally flat for the past two years in a range of low 40s to low 50s and likely suggests that we have not turned the corner on the economy just yet.

The U.S. inflation rate ended 2023 at 3.4%, down from a reported 6.5% in December 2022, but still well above the Federal Reserve’s long-term targeted inflation rate of 2.0%. Many in the industry are anticipating that the Fed will cut rates throughout the course of 2024 as it attempts a soft landing. This may prove more challenging than initially thought, with the U.S. Bureau of Economic Analysis recently reporting that Real Gross Domestic Product in the US increased at an annual rate of 3.2% during Q4/23, well above the 2.0% expected growth rate. If this rate of growth continues, the Fed will likely need to shift its interest rate strategy to fewer cuts or even no rate cuts at all if the central bank expects to bring inflation under control and achieve a soft landing.


According to several sources, many banks currently hold portfolios heavily invested in commercial real estate, including office space. Work-from-home strategies brought about by the pandemic have created significant vacancies and reduced property values. Rising interest rates combined with tighter credit standards over the past couple of years will make refinancing these transactions very challenging for these institutions, as landlords may be forced to either put up more capital or hand over the keys. Many of these loans are structured as interest-only payments with the balance due at maturity. A significant amount of this debt is scheduled to mature over the next several years and will likely continue to keep the banks focused internally — thus keeping them out of the M&A market for finance companies.

On the consumer front, prices for essentials such as groceries, gas and other energy prices remain high and continue to strain household incomes. According to the Federal Reserve Bank of New York, consumer credit card debt now exceeds $1 trillion and average card rates exceed 20%. Interest payments on student loan debts resumed in September 2023, putting added pressure on consumers and our economy.


Independent equipment finance companies continue to be attractive acquisition targets as they generally provide an above average risk-adjusted return over the long term. In fact, based on my experience, independent equipment finance companies generally tend to perform at their best when interest rates are elevated and liquidity levels tighten. Independent companies that can 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.

With most of the banks sitting on the sidelines, at least in the near term, and the economy sending mixed signals, non-bank financial institutions have an excellent opportunity to look opportunistically at acquisitions. Large strategic independent finance companies, captive finance companies, private equity firms and family wealth institutions — which are generally priced out of the market as potential buyers when banks are active — could become compelling bidders. Current interest rates would likely make it more difficult to acquire finance companies with large balance sheets, particularly those with assets that were originated with thin margins prior to and during 2022, but many attractive asset-light finance companies with originate-and-sell models could be acquired economically with well-structured earn out programs. These buyers would be able to enter the equipment finance market or simply expand their current offerings in the market. As liquidity for these asset-light companies tightens, sellers may see the benefit of being acquired by a financial institution with an ample amount of stable priced capital.


The continuing issue in 2024 is that prices for goods and services remain at high levels, and while we are all hoping for a soft landing, we are not there yet and may not achieve it. Given this uncertainty, it is understandable that potential buyers and sellers would be content to sit on the sidelines with a wait-and-see attitude toward where the economy is headed. Buyers that take a more measured approach to seeking out strategic opportunities to acquire companies that can provide strong management teams, equipment knowledge and expertise, and a strong customer base will be the winners in the long run. •

James (Jim) Jackson is Co-CEO of The Alta Group and leader of its Merger and Acquisition Advisory Practice. Alta’s M&A practice provides buy-side and sell-side advisory services, locates debt and equity financing, provides valuations and performs other related services to the equipment finance industry. Jackson has more than 30 years’ experience in the equipment leasing and finance industry and has served as a senior financial executive at MicroFinancial/TimePayment, Deutsche Financial Services, AT&T Capital Corporation – Leasing Services and Signal Capital Corporation. He formerly served as President of the National Equipment Finance Association and can be reached at [email protected].

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