With the acquisition, the company accelerated its internal plans to develop an independent business unit, and to create a new business unit called Industry Finance, under the leadership of Byron Payne. This group includes construction, commercial vehicles and trailers, and the manufacturing and industrial businesses, all run by individual managers reporting to Payne.

“Our effort there is to share products and processes and technologies across those businesses to deliver the best solution we can,” John McQueen, head of Wells Fargo Equipment Finance, says. The construction group, he adds, is the unit’s #1 marketshare, and is headed by general manager Ron Riecks, the former president of CIT Construction, which will remain headquartered in Tempe, AZ.

As of March 31, CIT Construction had $2.4 billion in assets and 235 employees. CIT Construction has provided commercial financing to the construction industry since 1938.

The deal, closed on July 2, fuses two leaders in the construction equipment industry into one provider with additional offerings and the same quality service — a mainstay for both organizations.

With more than $5 billion in managed receivables and 250-plus team members, Wells Fargo Construction provides commercial financing to the construction industry. It serves contractors who build and repair infrastructure, manufacturers of construction equipment as well as distributors and dealers who sell and rent construction equipment nationwide.

Wells Fargo Equipment Finance has a managed asset portfolio of $12.6 billion and serves more than 38,000 customers in the U.S. and Canada.

Recently, the Monitor sat down with McQueen, Riecks and Payne to find out more about the transition and what the acquisition means to both current and potential customers of both entities. McQueen calls CIT’s Construction unit a perfect fit with Wells Fargo’s already established division. “Our strategy is really to focus on core U.S. industries to support a diversified base of customers including direct manufacturers and dealers, and really leveraging our strengths of capital, tax, technology and middle-market process and capabilities… We were moving toward an expert model, which we felt CIT brought us.”

According to McQueen, CIT’s construction unit is focused on construction infrastructure, a secure segment of the industry, “as a diversified originations base with a focus on contractors, distributors, manufacturers, and is really committed to the relationship and customer satisfaction. Their team brings us a tremendous amount of expertise and experience throughout the organization.”

In addition, CIT Construction brings to Wells Fargo’s unit an expanded product set, which includes revolving credit products, fleet rental products and inventory products. Wells Fargo, on the other hand, brings to the table a lower cost of capital, a tax product, enhanced technology platform and access to a strong base of customers, as well as the company’s expanded set of financial products and services.

“That’s really what I mean by a perfect fit,” McQueen adds. “The two groups fit together extremely well. Wells Fargo and CIT Construction, culturally, are an excellent match… Both teams come out of large, corporate structures with experienced, dedicated people.”

As for how this acquisition fits in with Wells Fargo’s overall strategy, Payne says it starts at the top. “Wells Fargo & Company has always had a strategy of being #1 or #2 in industries where we are a financial services provider. So the purchase of CIT Construction just accelerated our plan, which was to be a significant player in the construction equipment finance industry. By purchasing CIT, we believe we are now the #1 construction equipment financing source in the U.S.”

The purchase also fits, he adds, with Wells Fargo’s focus on middle-market and upper middle-market customers, which both companies focus on in its construction equipment sectors. “We believe we can take that same product set and expand it into some other segments of industry finance,” including transportation, technology and the medical industries sector.

“It’s also an opportunity for us to bring yet another expertise to Wells Fargo. We have a great partnership with the bank. We’re considered a product partner and, wherever we can, we try to bring expertise and products to that set of bank customers to enhance our cross-sell to that customer base,” Payne says.

As for CIT Construction’s interest in the partnership, Riecks explains that both CIT and Wells Fargo are sound financial institutions. For clients, he says, this means they have a stable, sound and secure partner. “They have hundreds of high-quality products that before we didn’t have and are now available to all our customers. From an employee perspective… with Wells Fargo, it opens many avenues to enhance their careers. What Wells Fargo gets back is expertise in lending to the infrastructure contractors, dealers and construction equipment manufactures with a complete product set.”

By bringing two major divisions of two industry-leading companies together, one would assume a major transition would occur, throwing employees and even customers off balance. All three agree this is definitely not the case.

“This is business as usual,” Riecks says. “The cultures are almost a perfect fit. Wells Fargo uses and will use many of [CIT Construction’s] best practices just as we will use many of theirs.” In effect, it will also be business as usual for both employees and clients. “This business, he adds, “is run by the same executives in the same location, driving the same leadership as a lender in the infrastructure construction financing space.”

McQueen agrees. “We acquired CIT Construction really anticipating no change in their business model and part of that, was we were committed to retaining the leadership team in an effort to really maintain the culture and the customer focus. We bought this as an ongoing operation with a full intention of expanding the product set, expanding our offerings but not changing any of the really good things this business is already doing.”

He adds, “Our primary goal is customer satisfaction and relationships, and to really grow the business through development of greater customer relationships… I think at the end of the day, the main thing in an acquisition is how well the two business cultures fit together and I think both teams believe the cultures are an excellent fit for one another.”

According to Riecks, customers couldn’t be happier. “As soon as people heard that the entire team is remaining in place… and taking care of their same customers, they were delighted. Wells Fargo is a name that is well known in the marketplace, people know it’s a sound and secure financial institution. People know it has a reputation for a wide variety of high-quality products, and our customers were excited about the opportunity that we not only had a secure and stable parent, but we had a lot of new products to offer.”

As the CIT Construction unit remained intact after the acquisition, the internal transition has been easy as well. “I think it’s gone extremely smoothly,” McQueen says. “We were very focused on it. We had a few goals in the transaction and will have a few goals.” The first, he explains, is to have the transition be transparent so there is no effect at the customer level. “We don’t want to make any changes that will negatively impact the customer, the customer will only see something positive out of this.”

Another approach, which helped clear the path for the acquisition was to keep the doors of communication open between both teams. “We have tremendous leadership on both sides,” McQueen boasts. “We have a great team in Tempe and a great team within Wells Fargo Equipment Finance.” The groups took the time to ensure the integration was as smooth as possible from every angle.

Being the sibling of a parent organization like Wells Fargo, one would think this new unit is on its way to compete with the captives already immersed within the industry.

But that couldn’t be farther from reality, according to Riecks. “We don’t compete with captives. We feel we augment or enhance what captives do.” A captive’s job is to help its parent sell equipment — so they in essence work for the parent. At Wells Fargo Construction, he continues, “our only job is to work for the contractor and dealer, and those are our customers. We take seriously the fact … that we provide the right financial products at the right time in a company’s growth and at the right time in the business cycle.”

As a relationship lender, as he calls it, “We are very focused on the customer or end-user. We’re focused on doing repeat business… and we believe the only way to do that is to service their needs.”

The construction unit may be part of a bank but Payne explains: “We are also a full financial services provider so we can do much more for a client than just pure financing. We can bring a number of products and services that they may be currently using with another bank… and we can bring those products and services to them. CIt Construction has products captives don’t have, so we can bring those set of products to that customer base.”

These additional products include a full suite of revolving products including revolving lines of credit, and what they call “contractors’ revolving lines of credit” (CRC). For a dealer, “we are a lender that finances the entire business for a construction equipment distributor whether its receivables, inventory, parts or real estate, whatever assets they have, including service shop tools,” Riecks adds.

It also provides refinancings to contractors, who need it when they wind up with an endless stream of equipment acquisition loans, and they always do. “They need to refinance that debt over a longer period of time and again, that’s something else you can’t get from a captive.”

For both contractors and dealers, Payne adds that the unit, being part of a bank, can also offer treasury management services, insurance products and for the mining businesses, there are commodity hedge opportunities. It also aids companies that wish to transition their business on a generational basis, and the new group can advise these companies in the best ways to move their business from parent to child.

McQueen continues, “We have an extremely strong culture of cross selling … and we get tremendous cooperation through the business units,” of Wells Fargo, because of the flow of its delivery channel within the company. “I also feel Wells Fargo is recognized as one of the top Internet banks.” With it comes a Commercial Electronic Office® (CEO®) online portal, which provides some of the company’s larger customers the ability to manage their funds and businesses electronically.

In looking forward to the remainder of 2007 and into 2008, Riecks says, “We expect to see stable — which would be slow to flat growth — in new equipment acquisition. We expect to see the need for more refinancing.” He sees stable growth because, he adds, the non-residential market is more stable than other parts of the construction industry.

“At Wells Fargo, our primary focus is on the non-residential contractor. We picked that part of the business because we view it as being far more stable over industry cycles.” What drives that part of the business, he says, is the federal highway spending bill, the continuing need to build and maintain infrastructure, the growth in the U.S. population, and lastly, the population migration to the coasts and the Sunbelt.

He attributes a lot of the stable environment of this sector to the baby boomers reaching retirement age. As they do, the need for more facilities, such as healthcare construction, will drive the need for more non-residential construction. “We think 2008 will mirror what we’re seeing in 2007,” Riecks concluded.

With a few months under their belt heading the new unit and ensuring a smooth transition, McQueen, Payne and Riecks couldn’t be happier. “We’re very excited about the potential of the combined business,” McQueen says. “Our long-term goal is to use the best practices of both groups, integrate those practices over the next 12 to 18 months and deliver better efficiency primarily through a much improved technology platform.”

As for those from CIT Construction, “Everybody on the new Wells Fargo Construction team is excited and energized about being a part of Wells Fargo and all the additional things we can do to serve our customer… We’re all about adding value to the relationship and having all the resources of a terrific financial institution like Wells Fargo at our fingertips, to provide more value to our customers, is something we’re all very excited about.”

From left to right: Tim Pratt, Division Sales Manager, Wells Fargo Construction; Byron Payne, Head, Wells Fargo Industry Finance; John McQueen, Head, Wells Fargo Equipment Finance; Ron Riecks, General Manager, Wells Fargo Construction; and Tom Magrath, Senior Credit Manager, Wells Fargo Construction