In today’s volatile economic landscape, the equipment finance M&A market is in a state of transition. Optimism heading into 2025 has been met with caution as macroeconomic uncertainty weighs on both buyers and sellers. To make sense of what’s happening — and what’s ahead — Monitor’s Editor in Chief, Rita Garwood, spoke with Chris Hemler, Managing Director at Hovde Group, a leading advisor in specialty finance transactions. Hemler shares his insights on buyer sentiment, valuation trends, and what business owners can do to position themselves for a successful exit—even in a challenging market.

GARWOOD: Thank you for your time, Chris. To begin, can you briefly share your background?

CHRIS HEMLER: Of course. I’m a Managing Director at the boutique investment bank Hovde Group, where I focus on sell-side and buy-side M&A and capital raising for specialty finance companies with a specific emphasis on equipment finance. I’ve been advising companies within specialty lending and the broader financial services space for nearly 15 years. I began my career at GE, like many in our industry, before getting into investment banking at Houlihan Lokey and eventually joining Hovde Group in 2017.

The specialty finance team at Hovde is consistently the most active advisor to the non-bank lending industry. Since 2019 we’ve completed over 30 specialty finance M&A transactions along with several capital raises, many of those within equipment finance.

GARWOOD: How would you describe today’s M&A market for equipment finance companies?

HEMLER: There was a lot of optimism going into 2025 that banks and other buyers of independent lessors would be back at the table in a big way. Those “animal spirits” have been tempered recently as the new administration’s economic priorities have differed from the business-friendly, pro-growth agenda the market expected following the election. Confusion and concern over the direction of inflation, consumer spending and the overall economy have replaced that optimism. Now we find ourselves in a bit of a transition period, as uncertainty discourages major strategic decisions like selling your company or making a large acquisition.

GARWOOD: What needs to happen for conditions to improve?

HEMLER: Despite the uncertainty, traditional buyers of equipment finance companies are in a much better position today than a few years ago. Loan-to-deposit ratios have been steadily rising from their 2021 lows, making bank executives and boards more comfortable lending again, a precursor to increasing interest in acquisitions of asset originators. Private credit firms, insurance companies, and other asset managers are flush with cash they’re looking to put to work. But buyers will need to feel more confident in the direction of the economy before getting aggressive and bridging the buyer/seller valuation gap that currently exists.

GARWOOD: A lot of independents sold in 2021 and 2022, and there are likely some business owners out there who wish they had. What would your recommendation be to those people?

HEMLER: The answer to that question depends on the specific circumstances of the business and the personal and professional goals of ownership. Despite the decline in buyer interest from the heady days of 2021 and early 2022, there are still opportunities for business owners to sell at very attractive prices, but the strategic rationale hurdle is very high. There are companies with cash to spend and organizational goals an acquisition would solve, regardless of the overall market. For example, CHG’s acquisition of Meridian Leasing in December last year significantly expanded CHG’s U.S. presence and was a perfect business model fit. Likewise, accounts receivable factor Rosenthal had been looking for the right acquisition to enter equipment finance and wanted to establish a Midwest office, and solved both with their acquisition of Accord Equipment Finance. Finding those fits makes my job harder, but they’re out there.

GARWOOD: So are you saying the most aggressive buyers today are other lessors or finance companies?

HEMLER: For the most part, yes. But that doesn’t necessarily mean merging with a direct competitor is the only way for a deal to make sense, there just needs to be more justification than purely financial. Meridian Leasing and Accord filled strategic gaps at CHG and Rosenthal, respectively. An acquisition can provide complementary leasing products, origination channels, customer relationships, geographic coverage, or management expertise that make each business stronger and better able to compete in the market, none of which require expense reductions.

GARWOOD: How do you see buyer interest changing, if at all, over the next few years?

HEMLER: Community and regional banks, who are traditionally the most active acquirers of independent lessors, have been fickle recently. In 2022, their focus shifted to enhancing liquidity and cleaning up their commercial real estate portfolios. Bank liquidity positions have meaningfully improved since then, and several are looking to grow C&I assets and diversify away from CRE, but that perspective isn’t across the board. Many banks remain unwilling to dilute tangible book value by paying premium valuations in the current market and are conservative on asset growth.

The convergence of private equity, private credit and insurance has created diversified asset managers with flexible capital who find equipment finance a highly attractive asset class. These investors are very price sensitive however, and in recent years have focused on lifting equipment finance teams out of banks or partnering to fund bank-originated assets rather than full platform acquisitions. But as insurance companies continue to expand their direct investment partnerships and capabilities, their interest in the industry will continue to grow and, I predict, become more aggressive over time.

That leaves strategic buyers, who I see continuing to be a driving force for M&A. Competition among non-bank lessors has become increasingly intense over the last several years, making it more difficult to find genuine competitive advantages and outsized organic growth and profitability. As scale becomes increasingly important, consolidation is a natural outcome.

GARWOOD: What can a business owner do in the near term to put themselves in the best position to maximize price when they decide to sell?

HEMLER: If an owner has an interest in selling in the near to intermediate term, I encourage them to meet with an advisor to understand the current buyer market and valuation drivers for their particular business – they may not need to wait out the current market cycle to achieve their goals. If they’d prefer to wait, they should focus on setting their company up to most effectively compete for new business without taking additional credit risk. That can mean something different for each company. It may mean hiring salespeople in new markets, improving technology, or ensuring the company has the most efficient capital structure available so the sales team can price deals as aggressively as possible while maintaining returns. At the end of the day, a strong management team, high risk-adjusted returns, solid credit performance, and consistent growth are the main drivers of value. The right mix of each depends on the specific market in which each company competes.

While today’s M&A environment for equipment finance companies may feel uncertain, opportunities still exist for well-positioned businesses with a compelling strategic fit. As Hemler points out, thoughtful preparation, a clear understanding of market dynamics, and strong fundamentals can make all the difference—regardless of timing. Whether you’re actively exploring a sale or simply planning ahead, the groundwork you lay now will shape your options when the market shifts.