Just Getting Started: Ascentium Capital’s Private Equity Boost
by Phil Neuffer November/December 2016
As it celebrates five successful years in business, Ascentium Capital now has additional growth capital available thanks to a recent announcement that private equity firm Warburg Pincus will acquire the company. The investment will allow Ascentium to continue to focus on what it does best: making the financing process easy for small businesses.
This has been a good year for Ascentium Capital. It was ranked the third-largest equipment finance company in the 2016 Monitor Top Private Independents ranking and celebrated its five-year anniversary later in the summer. Stable growth led Ascentium to those milestones, but, as much as consistency has been key to the firm’s success, some things have changed.
A major shift took place this fall when funds affiliated with private equity firm Warburg Pincus agreed to acquire Ascentium.
The Anatomy of an Acquisition
Since its inception in 2011, Ascentium had been owned by Vulcan Capital — a group that included Paul Allen, who helped build Microsoft — and Luther King Capital Management, a Fort Worth, TX-based investment advisory firm. During five years of this ownership, Ascentium grew at an exceptional pace. When it first started by buying a portfolio and a team from Main Street Bank, Ascentium’s originations were low, as expected, but CEO Tom Depping expects the company to originate $850 million in 2016 with the potential to reach the $1 billion mark next year.
Motivated by that success, the original ownership group decided it was time to cash out. But Ascentium’s management team was eager to stay in the game and continue on its growth trajectory.
“The management view is that we have built this awesome platform, and we’re just getting started. It doesn’t make a lot of sense to sell for us, but for them — the investors — they’ve hit a home run,” Depping says. With that in mind, Ascentium retained the services of Goldman Sachs and tasked it with finding a new partner to buy out the original investment group. That led Ascentium to Warburg Pincus, which currently has more than $40 billion in private equity assets under management across more than 120 companies and has invested more than $58 billion in more than 760 companies during its 50-year history.
“Warburg Pincus is really, in my opinion, the blue chip private equity firm,” Depping says. “It’s just a great institution for management teams to partner with, so that will give you a feel for why we did what we did.”
But after the introduction was made, what was it about Ascentium that made Warburg Pincus want to get on board? Depping believes the decision was a result of Ascentium’s consistent production, proven profitability and talented management team.
“What Warburg invests in are management teams. They were attracted by Ascentium’s management team and the platform. I’m very proud of our platform. It’s a platform that allows us to streamline the lending process to a small business and makes that process something that’s so simple and so easy for a business to borrow money,” Depping says. “We do it through technology, whether it’s the credit approval process, which we can do in a matter of seconds, to delivering e-docs in a streamlined process, through to the funding process. We have a high repeat business rate, which means customers want to come back for more since we make financing for them very, very easy and that’s what we’re really all about — the customer.”
Depping’s assumptions are well-founded.
“We plan to continue expanding on the investments the company has made in building an industry-leading financing platform to drive their differentiated approach from traditional small business lending through their unique combination of technology, excellent customer service, speed and flexibility,” says Michael Martin, managing director of Warburg Pincus.
Continuation and the Direct Channel
What is evident from Depping’s and Martin’s comments is that this move will not alter Ascentium’s plans for the future. Rather, Warburg Pincus is stepping in to lend support as Ascentium continues to build on its first five years of success and provide resources for the company to expand operations and grow.
“I think the biggest change for our customers, our employees and everybody involved with Ascentium is we are now hooked up with an organization that will provide us growth capital for the future,” Depping says. “The growth capital means that if we want to make an acquisition that allows us to offer another product to the customer or, for that matter, if we want to just keep growing and continue doing what we’re doing, that we have a very strong company supporting us.”
Ascentium has already launched a full expansion of its growing direct channel business. Originally started as a vendor shop, Ascentium added a direct-to-end-user unit at the end of 2014, and Depping says it has been a great success in the two years since.
“Our main business is the equipment vendor business, where we get referrals from vendors, and that’s what Ascentium has pretty much done since the beginning. We have an exceptional sales force. We feel in many ways that the sales force is our customer because they’re the ones that bring customers to us and a large portion of our business is done through vendors,” Depping says. “We will continue to grow both the vendor and direct business channels. Both teams have done a great job. We’ve executed pretty well, and there is substantial opportunity for growth.”
Just as this deal was gestating (according to Depping, the process began in July), Ascentium’s rapid pace of growth was continuing. The company reported a 30% increase in originations in Q3/16 compared to the same period in 2015, crediting the growth to sustained strength in the technology, commercial vehicle and healthcare segments.
“We’re growing our direct business. We’re also getting new vendors and adding to our vendor business,” Depping says. “One of the main things that drives our business is we have a great sales force and strong marketing efforts whether we’re selling to a vendor or selling direct.”
Long-Term Investor, Long-Term Perspective
As it continues to gain ground on both the vendor and direct channel front, Ascentium clearly has some competitive advantages that have allowed it to rise to the very top of the independent equipment finance world. Warburg will supplement and enhance those advantages by doing more than just providing growth capital.
“What we are able to accomplish is based on the technology platform that allows us to streamline that process and make everything simple and very quick for the customer,” Depping says. “Again, having Warburg helps us in that we have a world-class company behind us. We’ll now have a very good solid group of networking that we can do through them.”
Just as this acquisition will not change Ascentium’s strategy for the future, it will not have a major impact on Depping, or his role, as far as he can tell.
“It doesn’t really change it at all. I’m very much excited about the future,” Depping says. “We’ve built this great platform, and we’re just getting started. It’s nice to know that we’ve closed this deal, and we’ve got a nice long-term investor who takes a long-term perspective.”
All told, Warburg’s investment will allow Ascentium to concentrate on its primary focus: small businesses.
“I think that the key with Ascentium has always been to make the financing process for a small business simple and hassle-free,” Depping says.