Economic Factors and Uncertainty Plague M&A Activity in 2022: 2023 Will Likely Have Its Share of Challenges

by Jim Jackson Mar/Apr 2023
Jim Jackson provides an overview of M&A activity in the equipment finance industry from 2022 as well as an assessment of the current market. While independents continue to be an attractive acquisition target for banks, several challenges block the return of more robust acquisition activity.

Jim Jackson ,
Co-CEO ,
The Alta Group

The economic environment that created a robust M&A market in 2021 for equipment finance companies carried into the early months of 2022, providing the promise of another banner year. The Dow Jones Industrial Average, which achieved a record high on December 31, 2021, remained relatively strong and markets continued to enjoy a low-interest-rate environment. The Federal Reserve did its best to assure us that inflation was transitory and would resolve itself and return to target levels as the economy adjusted to supply-chain issues. In fact, prior to March 17, 2022, the Federal Reserve confirmed this position and continued to keep the Federal Funds Target Rate at 0% to .25% and continued its bond-buying program to stimulate the economy, all while inflation was marching toward a 40-year record high of 8.5% by the end of the first quarter.

Concluding that inflation was not necessarily transitory, the Federal Reserve raised rates another six times throughout the year, settling on a Federal Funds Target Rate of 4.25% to 4.50% at the end of 2022. These increases, combined with inflation rate risk and the economic uncertainty of a potential recession, played a significant role in increasing investment hurdle rates and lowering company valuations.

Notable Recent Transactions

Despite this economic environment, a handful of notable equipment finance transactions took place throughout 2022. In January 2022, GreatAmerica Financial Services expanded its product offerings to include franchise finance with the acquisition of the assets of IRH Capital, LLC. IRH Capital President Keith Rabin will continue to lead the franchise division and operate out of the existing Northbrook, IL, office location. TimePayment, a financial technology company located in Burlington, MA, and majority owned by affiliates of Fortress Investment Group, was quite active in the M&A market during 2022. In January, it acquired Diversified Capital Credit, a small ticket-focused finance company operating out of New Jersey and Georgia. Diversified provides financing to waste/recycling, home care/healthcare, test and measurement, transportation, photography, energy smart funding and software and computer equipment. In connection with the acquisition, Diversified President Bruce Smith will assume the role of vice president of Sales for TimePayment. Later in May, TimePayment acquired Wheaten Financial, which will operate as a wholly owned subsidiary of TimePayment. Aimee McChurch, founder of Wheaten, will continue to lead her team from Wheaten’s headquarters in Irvine, CA. The acquisition expands TimePayment’s verticals to include commercial vehicles and titled equipment. For its third and final acquisition of the year, TimePayment purchased Tempe, AZ-based QuickSpark Financial in September 2022. As part of the acquisition, TimePayment hired more than 30 QuickSpark employees and acquired its active portfolio. QuickSpark will operate as a strategic business unit within TimePayment and will continue to provide financing primarily for small and micro-ticket transactions driven by e-commerce sales.

In March 2022, Peoples Bank, a $7 billion bank located in Marietta, OH, completed its acquisition of Vantage Financial. Located in Excelsior, MN, Vantage provides mid-ticket financing for business-essential information technology equipment. Vantage will operate as a subsidiary of the bank and serves to complement the small and micro-ticket offerings of the bank’s North Star Leasing division, which was announced in April 2021. According to the 10-Q filing for the period ended March 31, 2022, the bank paid cash consideration of $82.9 million to purchase the company, including the repayment of $28.9 million of recourse debt on behalf of Vantage. The purchase price calculation table indicates that Peoples acquired $158.4 million of total assets, which included $140.2 million in net lease portfolio and $115.9 million of total liabilities, resulting in the acquisition of $42.5 million of net assets and $40.4 million of recorded goodwill.

In June 2022, two subsidiaries of Brookline Bancorp merged: Eastern Funding and Macrolease. The combined organizations report an active portfolio in excess of $1.2 billion and all of the employees are expected to be retained as part of the merger. Eastern continues to serve the laundry, tow truck, car wash and grocery segments while Macrolease provides financing for fitness centers, wellness spas and nutritional food franchises. Also in June, Wingspire Capital, a portfolio company of business development corporation Owl Rock Capital, acquired Liberty Commercial Finance for an undisclosed amount. Liberty, which previously was majority owned by Copley Equity Partners, is located in Tustin, CA, and serves middle-market customers with transaction sizes ranging from $1 million to $50 million. In November 2022, Liberty Commercial Finance officially changed its name to Wingspire Equipment Finance to reflect its new ownership.

Gulf Coast Bank and Trust acquired the assets of KLC Financial and KLC Capital Partners in August 2022. KLC is located in Minnetonka, MN, and will continue to operate as a subsidiary of the bank. In a press release, Gulf Coast Bank CEO Guy Williams stated that they were looking to keep KLC employees and actually hire more employees to support the business and help it grow and expand. Gulf Coast is a $3 billion bank located in Louisiana.

Civista Banchares announced that it would acquire all of the outstanding shares of capital stock of Pittsburgh, PA-based Vision Financial Group in September 2022. According to the SEC filing by Civista in connection with the acquisition, the terms of the purchase agreement provided for a cash consideration of $28.6 million at closing plus an aggregate number of shares of Civista common stock equal to a value of $5.25 million. In addition, Civista agreed to assume and pay off $7.9 million of the outstanding subordinated debt of Vision. As an earnout incentive, the purchase provides for an additional $5.25 million in aggregate value in the form of Civista restricted shares contingent on Vision achieving certain performance measures in 2023 and 2024. In connection with the transaction, Vision will continue to operate under its existing brand and will become a subsidiary of Civista Bank.

In October 2022, the Boston-based private investment firm, Bain Capital, along with the Abu Dhabi Investment Authority, a globally diversified investment institution that invests funds on behalf of the government of Abu Dhabi, and the Merchants Fleet leadership team announced the completion of the acquisition of Merchants Automotive Group. Merchants is the fourth-largest provider of fleet management services with more than $2 billion in assets under management and more than 175,000 managed commercial fleets.

In November 2022, TIAA announced it had entered into a definitive agreement to sell TIAA Bank along with nearly all of its business lines and current assets to an investor group. The new investor group consists of funds managed by Stone Point Capital, Warburg Pincus, Reverence Capital Partners, Sixth Street and Bayview Asset Management. The transaction is expected to close in 2023, subject to regulatory approvals.

First Financial Equipment Leasing, based in Orange, CA, announced its expansion into Canada with the acquisition of Toronto-based NorFund Capital. First Financial is a member company of JA Mitsui Leasing and provides equipment finance and leasing services to support the healthcare, material handling, technology and construction industries. Robert MacFarlane, president and founder of NorFund Capital, will lead the newly named platform First Financial Canadian Leasing as a senior vice president responsible for growth in the Canadian leasing market in the renewable energy sector.

The Current Market

Many of the economic factors that made the majority of 2022 a challenging year for mergers and acquisitions remain present as we begin 2023. M&A activity and company valuations are driven in large part by levels of liquidity and access to credit, portfolio quality, stock market trends, unemployment rates, political and economic uncertainty and business confidence levels. One of the more influential factors in determining the level of M&A activity and company valuations is interest rates. When interest rates rise, potential acquirers also must increase their hurdle rates on acceptable investments, which generally results in lower acquisition values and fewer successful transactions. The current market seems to be sending mixed signals, which only serves to extend the likelihood that future uncertainty will depress the M&A market, at least in the short term.

Despite the recent significant rise in interest rates, the equipment finance and leasing industry remains strong and many of the senior leaders reported record-high originations and profitability for 2022, which carried into early 2023. In fact, the ELFA recently reported that new business for MLFI Index companies increased by 9% in December 2022 from the same month a year ago and increased by 6% on a cumulative basis in 2022 over 2021. Adding to the strong industry performance, portfolio quality remains high with the MLFI reporting that receivables over 30 days stood at 1.8% in December 2022, down from 2.0% a year ago. Charge-offs were 0.26%, up slightly from 0.25% for the same period in 2021.

Despite the strong industry performance, there still are a number of factors that will hamper the M&A market as we enter 2023. The Equipment Leasing & Finance Foundation’s 24-month confidence index for the equipment finance industry stood at 48.5 in January 2023, down from 63.8 reported in January 2022 and 59.6 reported in January 2020, prior to the impact of the pandemic. This index, which is designed to reflect a qualitative assessment of industry leaders’ perceptions of current and future business conditions, has been generally declining since April 2021 and suggests that equipment finance executives are becoming more concerned about the potential for a near-term recession and a decline in financial performance.

The U.S. inflation rate ended 2022 at 6.5%, down from a reported 9.1% in June 2022 but still well above the Federal Reserve’s long-term targeted inflation rate of 2.0%. As such, it seems that the Fed will likely need to continue to raise interest rates throughout 2023 to combat the persistent elevated values. In addition, the strong January 2023 jobs report, which added 517,000 new jobs for the month and reduced the national unemployment rate from 3.5% to 3.4%, serves to provide additional evidence that the Fed has more justification to continue to raise interest rates to slow the economy and bring inflation under control.


Independent equipment finance companies continue to be attractive acquisition targets for banks and other investors as they generally provide for an above-average, risk-adjusted return over the long term. In fact, based on my experience, independent equipment finance companies always tend to perform at their best when interest rates are elevated, and liquidity levels tighten. As we begin 2023, we continue to hear from qualified buyers that they have an interest in acquiring quality finance companies, but these buyers have become much more selective about the market segments and types of equipment finance organizations that would be of greatest interest to them.

Potential sellers still have several reasons to consider a sale in the near term. Many independent finance companies in the industry have aging owners who are beginning to focus on estate planning and transitioning their businesses to successor firms. Most of these owners understand that they need to start the sale process early because, regardless of their succession plan, they likely will need to continue working at least part time after the sale to successfully transition the business and achieve the optimal sale price for their company.

Regulatory compliance and reporting requirements are on the rise as state and federal officials focus on protecting their constituents from unfair treatment. Rate disclosure rules have been adopted by certain states and likely will continue to be adopted by others. In addition, the data-gathering and reporting requirements in connection with Section 1071 of the Dodd-Frank Act have been announced and will be effective soon. These regulations generally will place the greatest costs and burden on smaller, independent finance companies that do not necessarily have the breadth of resources and staff to accommodate these mandates.

The current challenges, which likely will remain issues for 2023, are the persistent uncertainty of the economic environment and the lack of clarity of the timing and severity of a potential recession and when we might return to a more traditional interest rate and inflationary environment. Once this can be determined, potential buyers will be able to lower their investment hurdle rates and more opportunities for profitable acquisitions will be available. Based on the current economic conditions, it may be some time before we return to these conditions, which will be key factors in returning to a more robust M&A environment.

Note: This article was written in February 2023.

ABOUT THE AUTHOR: James (Jim) Jackson is co-CEO of The Alta Group and leader of its Merger and Acquisition Advisory Practice. The 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 of 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 currently serves as immediate past president of the National Equipment Finance Association and can be reached at

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