TIAA recently entered a two-part deal with GE Capital Healthcare Equipment Finance, which involved the acquisition of a $1.5 billion portfolio of healthcare equipment leases and loans as well as a five-year vendor financing agreement that will enable TIAA to serve U.S. customers of GE Healthcare. Leaders from TIAA and GE Capital HEF sat down with Monitor to discuss the details.
In November, TIAA Bank enhanced its position in the healthcare space with the acquisition of a $1.5 billion portfolio of healthcare equipment leases and loans from GE Capital’s Healthcare Equipment Finance business.
“The portfolio sale was very important, and that was strategically important to GE and GE Capital to assist with the reduction of the GE Capital portfolio in concert with the company’s strategy. We went through a pretty exhaustive process interviewing different candidates,” says Jim Ambrose, president of GE Capital Healthcare Equipment Finance.
At first, GE was just trying to find the right buyer for this portfolio, but as its team got to know TIAA, the sale became just the first component of a two-part deal, which includes a five-year vendor financing agreement between the companies that will enable TIAA to serve U.S. customers of GE Healthcare in a co-branding arrangement.
An Evolutionary Process
“The co-branding is going to be an evolutionary process between the parties to identify both products and applications that are best for both of our companies, as well as our customers,” said Mike Sweeney, SVP, Vendor Equipment Finance at TIAA Commercial Finance. “I think we share a vision for the future that we want to capitalize on the brand prominence of both of our companies and offer synergistic non-competing products to enhance value for all of our mutual customers.”
“Initially, we weren’t looking at a five-year program, but when we connected with TIAA and compared our capabilities, strengths, relationships and expertise, we collectively deemed it appropriate to create a longer term agreement,” Ambrose says. “We think there is a lot of value that we could bring to the C-suite of not-for-profit hospitals in the U.S.”
TIAA was already focused on both the higher learning educational space and the non-profit hospital arena. This transaction significantly expands TIAA’s commercial banking business and enhances its ability to provide a full range of financial solutions to institutional clients and serve an even greater number of healthcare providers, marking a significant synergistic opportunity, according to John Pataky, TIAA’s chief consumer and commercial banking executive: “The credibility and the power of the GE brand in the healthcare equipment space coupled with our financing capabilities into a relationship segment — that is very important to the organization. It was just a great combination.”
Some of the synergistic benefits include the ability to deliver non-competing product solutions into the space while bolstering the existing relationships of GE Healthcare and TIAA.
“Many healthcare entities already have relationships with both TIAA from a retirement planning side and also an equipment financing or leasing perspective, but there is a large universe of entities are single product,” Pataky says. “We really believe this in an opportunity to provide the entity, as a commercial business, with retirement products and other solutions such as a broader range of services for the commercial entity as well as offer our capabilities to their employees, such as workplace banking or other consumer services to the actual practitioners and positions and executive teams at the healthcare entities. We again see just a great synergistic model here playing out.”
Value of Financing to GE Healthcare
In June 2018, GE announced it would establish GE Healthcare as a stand-alone, pure-play company.GE Healthcare Equipment Finance’s leadership, infrastructure and salesforce will be integrated into GE Healthcare in 2019 and ultimately become part of the stand-alone company.
“We’ve [HEF] been partnering with GE Healthcare for the better part of 30 years,” Ambrose says. “As their innovations have evolved, the needs of the customers have followed suit and our value as a financier has developed and grown as a result.”
Ambrose says the capabilities that his team provides for GE Healthcare will continue. “We are going to move the global team into GE Healthcare. We will be part of that business; infrastructure will largely be as it is today, in terms of the people and the functional capabilities that we have around the globe. It really positions us for the new world of GE Healthcare.”
With the vendor financing agreement in place, TIAA will be the primary funding vehicle for GE Healthcare in the U.S. “We will have the flexibility to maintain use of GE Healthcare’s balance sheet in addition to our relationship with TIAA,” Ambrose says. “Over time we will explore identify synergies among GE Healthcare, HEF and TIAA; it’s not inconceivable that we will find opportunities to link GE Healthcare with TIAA and we’ll do so in a thoughtful and reasonable fashion.”
Creating a Unique Vendor Model
When the companies sat down to create the model for the five-year vendor program agreement, they mutually created a unique corporate government model.
“This affords HEF the ability to continue to run its business as it has over its 30-year history, now within the construct of GE Healthcare,” Sweeney says. “But the model also ensures that TIAA Bank has proper controls and compliance to operate as a bank, as the primary funding source for GE Healthcare in the U.S.”
“I’ve been in this business for 20 years and have been associated with many different vendor programs and this one is truly unique, in that it provides the flexibility that Mike described,” Ambrose says. “We maintain our commercial, risk, asset management and customer relationships while partnering with a trillion dollar pension fund that is focused in the same arena, in a complementary way.”
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