Steve Hudson, the entrepreneur whose past ventures range from Newcourt Credit Group to Hair Club for Men, has struck a deal that will boost his new firm, Element Financial Corp., to the size he figures is perfect for taking it public.
Element will be paying book value for the assets of Montreal-based Alter Moneta, a leasing firm that was started in 1998 with money from National Bank of Canada and the Caisse de dépôt et placement du Québec. It now has about $180-million in lease assets.
The deal will make it easier for Element Financial to obtain a stock exchange listing later this year. Element specializes in providing leases in the $100,000 to $1-million range to small businesses for equipment such as trucks, fork lifts and electric golf carts. It focuses on financing for the transportation, construction, industrial, health care and golf industries.
“Alter Moneta had a very large platform for new leases and secured loans in Quebec, and we’re firing that up as we speak,” Mr. Hudson said in an interview at Element’s new offices in the north end of Toronto.
The acquisition also provides Element with back office systems, including lease management and financial reporting software, which will shave months off the time it would have taken Element to build systems sophisticated enough to cope with a significant increase in business. The deal is being financed by Bank of Montreal.
Much like Mr. Hudson’s former and current leasing businesses, Alter Moneta had embarked on an ambitious growth plan, buying the equipment finance subsidiary of HSBC Bank USA in 2003 and setting up a U.S. headquarters in Buffalo.
But in 2007, Bear Stearns Merchant Banking bought a controlling stake in Alter Moneta, and when Bear Stearns subsequently collapsed in 2008, Alter Moneta’s funding dried up as banks avoided anything that was affiliated with Bear Stearns.
Element is now buying the assets from the Caisse and Irving Place Capital. And it’s still on the hunt for further deals.
Mr. Hudson says he still wants to complete three or four more deals in the near future to take advantage of the lingering impact of the financial crisis.
“I think in the next 12 to 18 months, you’ll see incredible value, and after that the world heals itself, and capital starts to flow back in, and yields get driven down,” he said.
Canadian banks, which already dominate the large-ticket leasing market (where, for instance, they’ll provide a multimillion-dollar lease for a fleet of trucks), have recently been bolstering their presence in the small-ticket leasing market. Last year, Royal Bank of Canada bought MCAP Leasing Inc. and Canadian Western Bank bought Winnipeg-based National Leasing Group Inc.
“I think that ultimately the leasing business will be bank owned,” Mr. Hudson said, noting that Element Financial’s cost of funding is higher than the banks it competes against.
But Mr. Hudson still believes that Element will be able to shake up the industry as it grows.
Mr. Hudson previously founded Toronto-based Newcourt Credit Group. While he created that company for less than half-a-million dollars and later sold it in 1999 for $2.4-billion, that was likely much less than it could have fetched prior to a slide in profit. Mr. Hudson said he is applying lessons from that experience to Element, including how the company’s funding structure works.