James Jackson,
Co-CEO,
The Alta Group

The relatively high interest rate environment which hampered the M&A market for equipment finance companies in 2022 and 2023 carried into the first half of
2024, setting the stage for another year of limited transaction activity. The Federal Reserve’s continued battle against inflation over the past three years resulted in seven Federal Funds rate increases during 2022 followed by four more increases in 2023, increasing the target rate range from 0 to 25 basis points to a 21-year record-high range of 5.25 – 5.50 basis points. At the start of 2024, it appeared as if the Federal Reserve’s aggressive actions during 2023 were driving us toward a soft landing. Inflation had dropped significantly from 6.5% in December of 2022 to 3.4% in December of 2023. Based in part on these results, the Fed was predicting at least four rate cuts during 2024, hinting that the rate cuts might start as early as March of 2024, providing optimism to the market that inflation was indeed behind us, and we would soon return to a lower-rate environment.

Unfortunately, persistently high inflation rates combined with low unemployment and strong jobs reports in the first half of 2024 delayed the Fed’s proposed rate cuts, creating more uncertainty and confusion about the economic environment. It wasn’t until September of 2024 that the first of three rate cuts would occur with a reduction of 50 basis points in September and additional 25-basis-pointcuts in each of November and December. Some have argued that the 2024 rate reductions have been too aggressive, as inflation reversed course and increased from 2.4% in September to 2.9% in December, well above the Fed’s target inflation rate of 2.0%. The Fed is now indicating that future rate cuts may be limited, and some have indicated that the Fed may have to actually reverse course and raise the target rates again if inflation persists.

For most of 2024, election uncertainty influenced the M&A market. The United States faced two candidates and administrations with very different ideas about the regulatory environment, energy policy, tariffs and trade, corporate and personal tax policies and other important factors influencing the M&A market, company valuations and potential future business conditions. In addition, geopolitical risks associated with the United States involvement in wars in both the Middle East and Europe created additional uncertainty about the general health of the economy and government spending.

NOTABLE RECENT TRANSACTIONS
Despite the challenging M&A environment, there were still a handful of notable equipment finance transactions that took place throughout 2024. In March of 2024, Vivakor, a publicly held company focused on developing, acquiring, accumulating and operating assets, properties and technologies in the energy sector, signed a membership interest purchase agreement to acquire Meridian Equipment Leasing, Endeavor Crude, Equipment Transport and Silver Fuels Processing from Jorgan Development and JBAH Holdings, for approximately $170 million. The purchase price consisted of approximately $120 million paid at closing in common stock and the balance was subject to the combined companies achieving a minimum of $12 million of EBITDA in 2024 and would be paid in Company Series A Preferred Stock.

Quiktrak, founded in 1991 and headquartered in Beaverton, Ore., acquired TKS Group in March 2024. Quiktrak provides asset verification, floorplan auditing and risk management services to the equipment leasing and finance industry. According to the press release, the acquisition of TKS Group, based in Madrid, Spain, expands Quiktrak’s offerings to include an end-to-end technology solution for managing assets and audit processes providing advanced insights and risk management solutions to customers.

In April 2024, in an effort to streamline its operations and create a more efficient business model, Société Générale agreed to sell the majority of Société Générale Equipment Finance (SGEF) to Group BPCE for approximately $1.2 billion. According to the press release, Société Générale would maintain equipment leasing and financing activities in the Czech Republic and Slovakia. SGEF operated in 25 countries through a network of dealers, manufacturers, vendors and banks with a focus on transportation, industrial, technology, medical and renewable energy equipment. Group BPCE has committed to using its capital and resources to grow and expand SGEF’s activities internationally. According to Group BPCE’s press release, the acquisition will position the company as the leading provider of equipment financing solutions in Europe.

JA Mitsui Leasing, through its subsidiary JA Mitsui Leasing USA Holdings, acquired Oakmont Capital Holdings (dba Oakmont Capital Services) in April 2024. Oakmont, headquartered in West Chester, Pa., with a full-service office in Albany, Minn., provides small-ticket commercial equipment financing and working capital solutions nationwide. Oakmont was founded in 1998, initially operating as a full-service independent brokerage and made the transition to a full-service lessor shortly after adding a lift-out team consisting of 11 former Stearns Equipment Finance professionals in July 2018. The acquisition provided JA Mitsui with the ability to expand its current operations by adding a streamlined small-ticket financing solution to its existing equipment financing operations in the United States.

Centra Funding, a nationwide equipment finance company headquartered in Plano, Texas, announced last May that it had acquired the LeaseQ Restaurant and Franchise Team and the associated equipment finance platform from TimePayment Corp. With the acquisition, Centra expands its commitment to the foodservice industry and will continue to partner with TimePayment to provide instant approvals for micro-ticket restaurant and franchise transactions. Centra anticipates that the offering will be rebranded to Centra Culinary Finance and will be led by Sandra Van Buren and Kim Lorang. According to John Boettigheimer, president of Centra, the company looks forward to adapting the LeaseQ platform across many of the other industries Centra serves.

In August, GreatAmerica Financial Services hired a team of eight technology leasing and financing individuals led by Jonathan Fales. Prior to joining GreatAmerica, Fales was a divisional president of LEAF Commercial Capital and led the VAR Technology Finance business that LEAF acquired in 2019. With the acquisition, GreatAmerica hopes to expand its existing technology offerings to the value-added reseller and national service provider markets.

In September, Liventus, a custom software development firm headquartered in Northbrook, Ill., announced its acquisition of Sparkflow Data Analytics. Liventus was founded in 2002 and serves the equipment finance, fintech, insurance, healthcare and eCommerce industries. Sparkflow provides innovative data warehouse and analytic model design tools. The acquisition provides Liventus with the ability to combine its custom software development with Sparkflow’s data analytics to better position the company to meet its customer’s needs.

Strategic Funding Source, dba Kapitus, founded in 2006, a fintech specializing in business loans for small and medium businesses, announced the acquisition of Ten Oaks Commercial Capital in October. The acquisition allows Kapitus to expand its product offering to include equipment finance and working capital loans to its client base.

North Mill Equipment Finance, headquartered in Norwalk, Conn., announced in November 2024 that it had acquired 100% of the stock of TF Group, dba Taycor Financial. North Mill is focused on originating small and medium-sized commercial equipment leases and loans through third-party referral origination sources. The Taycor Financial acquisition expands this offering through Taycor’s focus on developing and strengthening vendor and direct origination programs.

In December, CHG-Meridian Group, a technology company focused on providing customers with custom technology financing solutions, acquired Meridian Leasing, a managed services provider for cloud, infrastructure and IT security. CHG-Meridian Group believes the merger will result in increased profitability and improved customer offerings.

THE CURRENT MARKET
The M&A market continued to improve during the second half of 2024, due in large part to the reductions in the federal funds target rates. M&A activity and company valuations are heavily influenced 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 fall, potential acquirers can afford to pay higher prices for target companies, which generally results in more opportunities for successful transactions. In addition, sellers who hold fixed-rate portfolios where the majority of the originations took place during a higher interest rate environment will benefit from higher net interest margins and profitability.

Industry performance remained strong in 2024 and several companies are reporting record-high originations and profitability for the year. In fact, the Equipment Leasing and Finance Association recently reported in its CapEx Finance Index that year-to-date new business volume for 2024 increased by 4.8% from 2023. Adding to the strong industry performance, portfolio quality remains strong with the Index reporting that receivables over 30 days stood at 2.0% in December 2024, down from 2.3% in December 2023 and up slightly from 1.8% in December 2022. The Index further pointed out that much of the new volume growth was due in large part to an increase in bank-owned finance activity, bringing the banks’ share of business volume in December 2024 to 62% of total volume. As banks continue to seek growth and market share in the industry, the prospects for M&A activity improve.

Industry confidence continues to improve as we start 2025 with the Equipment Leasing and Finance Foundation reporting that the Monthly Confidence Index for the equipment finance industry increased to 69.6 in January of 2025, up sharply from 48.6 in January 2024, and 48.5 in January 2023. This index, which is designed to reflect a qualitative assessment of industry leaders’ perceptions of current and future business conditions, has not seen the current confidence levels since July of 2021, suggesting that we may have turned the corner on the prospects for sustained economic growth and profitability.

In addition to the strong stock market, low unemployment rate and highest business confidence levels in the past three and a half years, the uncertainty of the 2024 presidential election is now behind us. The new administration’s campaign ran on the promise of promoting a more business-friendly environment through reduced regulations, lower corporate tax rates and reduced pricing for goods and services driven by a more robust energy policy. If the government can deliver on these objectives, it should provide an economic environment that promotes M&A activity in our industry.

Despite the strong industry performance and improving economic environment, a number of factors might challenge the M&A market in 2025. In addition to showing improvement in many areas, the CapEx Finance Index reported that charge-offs reached 0.52% of receivables in December of 2024, up sharply from 0.44% in December of 2023 and 0.27% in December of 2022. Credit approval rates dropped to 74% at the end of 2024, down from 75% for the same period a year ago and 77% in 2022, indicating that applicant credit quality could be starting to deteriorate.

The New York Federal Reserve reported that credit card debt reached $1.166 trillion in the third quarter of 2024, the highest on record since the measurement began. According to BankRate, the average credit card interest rate is 20.14% as of January 2025.

Certain key provisions of the Tax Cuts and Jobs Act passed by Congress in 2017 are set to expire at the end of 2025. A number of tax policy changes were included in the bill, including reducing the corporate tax rate from 35% to 21%. With Republicans holding a slim majority in the house, it remains uncertain if the key provisions of the bill will renew or expire. The bill also included a scheduled phase out of bonus depreciation, reducing the deduction from 100% in 2022 by 20% per year until it is entirely phased out in 2027. These factors will continue to create economic uncertainty and could influence the level of M&A activity during 2025.

The new administration is focused on trade and may introduce import tariffs on certain foreign goods being sold in the United States. If import tariffs are implemented, it may take some time to determine the long-term impact — if any — on the supply chain, prices and inflation rates, as well as their effect on equipment demand and the availability of new equipment or parts needed for repairs and maintenance. The Alta Group discusses many of the above factors in its 2025 Insights report, available at thealtagroup.com.

CONCLUSION
Current economic factors on balance would suggest that the industry should expect an improvement in M&A transaction volume in 2025. The uncertainty of the election is behind us, and we are at the beginning stages of a more friendly business environment with an administration promising a reduction in regulations and corporate taxes. Independent equipment finance companies continue to be attractive acquisition targets for investors as they generally provide for an above-average risk-adjusted return over the long term. As we begin 2025, 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 as, regardless of their succession plan, they will likely 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.

Several private equity firms and family wealth funds made initial investments in companies seven to 10 years ago. It is typical for these investors to look to exit their investments during this timeframe to provide their clients with their target returns and provide liquidity to invest in other projects. Since these investors have not feasibly or profitably been able to exit these investments in the past three years, they will likely want to opportunistically test the M&A markets in 2025 to determine if they can successfully exit. A number of strategic finance companies have indicated that they are interested in acquiring lift-out teams that can provide them with access to new business relationships or new market offerings. In fact, several successful lift-outs have already been announced in 2025.

The current challenge, which will likely remain an issue in the early months of 2025, is persistent inflation and the uncertainty around the Federal Reserve’s position on the number of and magnitude of rate changes for 2025 to achieve a soft landing and finally get inflation under control. This will remain a key factor in returning to a more robust M&A environment and driving more successful deal flow. •

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 over 35 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 is a Past President of the National Equipment Finance Association and can be reached at jjackson@thealtagroup.com.