Last fall Element Financial Corporation CEO Steve Hudson and president Brad Nullmeyer expressed interest in expanding Element’s vendor finance capabilities through a strategic U.S. acquisition. As founders of Newcourt Credit Group, they certainly knew what it takes to build and operate large, successful vendor programs for industry giants such as Dell, Snap-On and Lucent. They also knew that CoActiv Capital Partners, with its seasoned U.S.-based leadership team and established operations center, had everything they wanted.
By the end of November, Element had acquired CoActiv Capital Partners from Marubeni America and Marubeni. As part of the sale, CEO Don Campbell and president Steve Grosso retained their positions and brought along most of their 70 employees. The U.S. platform now operates as Element Financial (USA).

“Steve Hudson knew our history of building large scale commercial finance equipment leasing businesses and quickly identified that our platform had a management team and operations that were completely scalable,” notes Campbell. “That was the strategic fit. As we got to know each other better, we saw that there was a complete philosophical and cultural fit as well.”

With total assets of approximately $1.5 billion, Element Financial is Canada’s leading independent equipment finance company. Element operates nationally in three verticals: In the North American equipment finance market, Element Capital serves large ticket and Element Finance serves middle ticket. Element Fleet provides vehicle fleet leasing and management solutions in Canada.

Equipment finance veterans Campbell and Grosso established Partners Equity Capital (PECC) in 2002. Marubeni acquired PECC in 2007 and changed the name to CoActiv Capital Partners as part of its strategy to enter the U.S. leasing and financial services industry. More recently, Marubeni shifted focus from its finance and insurance businesses and acquired Gavilon, a large U.S. grain merchant. As a result CoActiv was sold.

“Marubeni is a Japanese trading company that owns hundreds of companies around the world, and we were one of those businesses,” explains Grosso. “The company is an investment-driven trading company, and our business could be monetized to help them pay for a broader more strategic acquisition.”

Dynamic Duo

Campbell and Grosso have been following each other around the equipment finance industry for more than 30 years. They met at ITT Industrial Credit in Philadelphia. “Don founded that office, and I was a trainee straight out of business school,” remembers Grosso. “We hit it off from the start. Don was my boss, mentor and leader. Together we have had the opportunity to start, build and lead some really great, fun organizations.”

“We have the same goals, and sometimes we get there differently,” remarks Campbell. “We have deep respect for each other, we know how to do the job, and we get it done together. It’s an incredible working relationship.”

“One of the core values I’ve learned from Don is to be continually curious and learn, and that is one of the things that has made us successful,” says Grosso. “We both have enough humility to admit when we are wrong, and we learn from each other as well as from everyone else.”

“We have a common goal to be the best at what we do, and you can’t do that alone,” emphasizes Campbell. “Our responsibility as leaders is to motivate our employees and show them the path and then get them to follow or buy in. Since the acquisition by Element, that part of our job is much easier. We are a growth company, and there are more advancement opportunities. When vendor partners visit, they tell us there’s a ‘buzz’ in the building. I see a lot of smiling faces. It’s a great place to build a career.”

“I would underscore that five times over,” Grosso chimes in. “We have had successes together — from ITT to Fidelity, First Fidelity, Tokai and the ultimate sale to De Lage Landen to the starting of this business — but it hasn’t been a straight line. We have also had our fair share of failures, and hopefully we learned from them. The Element organization is going to be the best of all.”

“We have already found synergies,” proclaims Campbell. “Element has vendors in Canada that we are doing business with in the States, and we have vendors in the States that are now doing business in Canada. From a point of strategic positioning, it’s phenomenal. We are now a North American solution.”

Under Campbell and Grosso’s leadership, Element Financial (USA) delivers manufacturer-supported equipment financing programs through more than 15 vendor finance programs in the construction, industrial, office products and technology markets as well as franchise capital refurbishment programs.

Positioned for Growth

In the middle-market business in Canada, Element offers direct and vendor financing solutions across a wide range of equipment categories. The near-term focus in the States is on the vendor business segments where CoActiv had already built a solid base in construction and industrial, office products, technology, transportation and healthcare.

“These are discrete industries that have unique characteristics that are attractive to us from a sales and marketing perspective as well as whether we can add value to a manufacturer and its distribution channels,” says Grosso. “We look for certain characteristics in the end-users and whether they will recognize that our value in service and operational quality translates to a good partner. Other important characteristics include credit insights, expertise in underwriting and the assets to be financed. Our mission is to help those vendor partners with their strategic objectives of growth, market share and profits.”

“Where the growth for us will come — and the value of this company — is in the deep relationships that we develop,” stresses Campbell. “When we choose a partner, we go deep into their organization. We understand their operational needs and fulfill them. We have relationships as long as 12 years, and we have many multiple-year contracts. We have a philosophy in the vendor space: We don’t want a thousand relationships that are three inches deep; we want a hundred relationships that are three miles deep.”

When asked about their franchise capital refurbishment programs and the Quick Service Restaurant market space, Grosso responds, “Franchise finance is a business model where you have a business owner that sponsors consistent standards of delivery of products and services to a market. QSR is a segment of the franchise space — but we are in a bunch of other franchise segments, too. The Tier I franchise business is just one of six businesses we focus on, and we are as committed to it as we are to our other industry segments. Now that they are part of Element, there is an abundance of funding; our challenge is to deploy it.”

Element’s core businesses fit nicely with the newly enlarged U.S. platform. “We are looking at those businesses,” shares Campbell. “Element’s aircraft expertise is a core part of its large-ticket division so it’s not part of our mandate, but transportation clearly is. We already enjoy the benefits of Element’s understanding and relationships in this industry and are doing business with its Canadian partners. Now its Canadian business can offer a North American solution, so there are great opportunities on both sides.”

Looking Ahead

“The future is very, very bright,” beams Campbell. “We can’t control the economy, but we are making prudent underwriting decisions and have programs with Tier I manufacturers and partners. As their business goes, our sales go, but we are taking market share and that is our differentiator. Our job is to penetrate and bring value. We don’t sell pricing — we sell value.”

The future appears so bright that Grosso exclaims, “We have our sunglasses on! Obviously we need to stay competitive, but it’s more about how you position yourself in the marketplace. Price is a component, but over our career, it’s never come first. Not ever!”

Even at the peak of optimism, there are always challenges ahead, and Grosso confesses that he is concerned about the things he can’t control. “Obviously there is a lot going on in the world with the economy, and the U.S. economy is not so robust as to bring huge opportunities that drive capital spending.”

A lack of human capital is a concern that hits closer to home. The company is looking for people who can keep up with its pace. “This is clearly a growth company,” says Campbell. “Our employees have a lot of energy and smarts, and we always need great people.”

“Training and development are extremely important to us,” adds Grosso. “Each of our executives shares a piece of this responsibility. Each employee has an individual development plan and we adhere to that, because you have to make yourself a learning organization. You start by hiring the right people and then offer them an environment that is challenging with new things to do.”

“Element’s acquisition of CoActiv rekindles our entrepreneurial spirit, and lets us put our years of experience to work,” admits Campbell. “We are more excited about the future than ever, and I hope our enthusiasm is evident, because it’s truly there.”

“Hudson and Nullmeyer are incredibly talented executives,” concludes Grosso. “They recognized a platform for growth in the U.S., and Don and I have a track record for success. This is a company that offers great service and quality that helps our partners grow, and that is what we are going to do.”

Lisa A. Miller is a freelance writer who has worked in the equipment financing industry for 17 years.