Chaos Ensues: DLL, FirstMerit and Increasing M&A

by Dexter Van Dango

Dexter Van Dango is a pen name for a real person who is a senior executive with more than 25 years of experience in the equipment leasing industry. A self-described portly, middle-aged, graying, balding leasing guy in the twilight of a mediocre career, Van Dango will provide occasional insight from the front lines via Monitor.

Dexter Van Dango reacts to the bombshell news that Rabobank is seeking to sell DLL and Huntington Bank’s plans to merge with FirstMerit, while speculating about the future of M&A in the equipment finance industry.

The equipment finance and leasing business is getting to be quite chaotic. Increased M&A activity surrounds us as investors seeking high yielding assets have begun to focus in on our industry. This week’s announcement that Rabobank Group is seeking to sell DLL to institutional investors or private equity firms comes on the heels of GE Chairman and CEO Jeffrey Immelt announcing that “GE Capital exits are ahead of plan, with $157 billion of signings to date.”

It’s time for the minnows to capitalize on the chaos created by the falling of another whale.

As the nursery rhyme claims, “all the king’s horse and all the king’s men couldn’t put Humpty together again.” Much like GE Capital, it is plausible that DLL could be sold to a single entity, say a private equity firm, but not likely. With operations in 35 countries and multiple business lines, DLL is more likely to end up in the hands of several investors.

A key driver behind Rabobank’s decision to sell DLL is the increasing capital requirements for European banks coming in the next few years. One might presume that other European banks would shun the idea of absorbing DLL. However, BNP Paribas and Société Générale both have substantial equipment finance groups with broad international presence. Facing similar capital requirements may make the acquisition less appealing, but the cost savings coupled with the increased earning assets will surely make each firm take a peek at the possibility at the very least.

And there’s more.

Huntington Bank announced its intent to merge with FirstMerit. Tim Evans has done a yeoman job of building a competitive equipment finance group for FirstMerit. He and Michael DiCecco will need to work out what the future will look like for the combined firms. With a decent amount of overlap in the banks’ target markets there is likely to be some redundancies.

And there is still more.

Rumor has it that Siemens Financial Services has undergone another global reorganization. Roland Chalons-Browne remains as CEO of the global financial solutions firm, but word is he has moved out a few of his lieutenants, and some say, prepared the company for severing of certain appendages. Perhaps the global industrial giant took notice of GE’s divestiture of most of GE Capital. Much like GE, Siemens Financial Services supports several Siemens industrial businesses ranging from power plants, healthcare facilities, rail and air transportation hubs and others. However, when taking an introspective look at itself and the rest of the SFS operations, the powers that be may question the sanity of financing commercial aircraft, offering vendor finance to third parties or making private equity investments and delving into venture capital. Much of this is speculation on my part, so don’t take it too seriously. But the old adage – where there is smoke, there is fire – may hold true in this case. We’ll wait and see.

The question remains, what’s next? What will become of DLL? Will private equity jump in the game with someone like Stephen Schwartzman, CEO of the Blackstone Group, becoming a key player in the equipment finance and leasing business? Only time will tell. But I for one will enjoy watching as the chaos ensues. Your feedback and comments are always welcome at [email protected].

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