Steve Hudson pulls into the parking lot of the east Toronto strip mall in a gleaming black Dodge Ram truck.
His flowing blond hair and expensive white shirt, open at the neck, look out of place as he strides across the asphalt in the midst of this middle-class suburb. Yet for the man who founded Newcourt Credit Group, which had the chance to be remembered as one of Canada’s greatest corporate successes, this is home.
Mr. Hudson is building a new version of Newcourt, a company he turned into the world’s second-largest non-bank financial company in the 1990s before a not-so-storybook ending saw the company sold under a cloud to a bigger rival. His new venture, Toronto-based Element Financial Corp., is aiming to be one of the biggest independent competitors to the Canadian banks, providing financing for companies that need everything from dentist’s chairs to corporate jets and don’t want to pay up front.
The 2008 financial crisis blew a hole in the lending market that a company like Element can fill. Big players in equipment financing stepped back, or got out entirely. Element is growing incredibly quickly – going from $6-million in assets two years ago to about $1.2-billion. Eighteen months after going public, the stock is up 44 per cent and the market capitalization stands at $502-million.
This time, Mr. Hudson must avoid the mistakes of Newcourt: the hubris, the overreaching, the risk taking, the unbridled expansion.
Coming to the Scarborough area of Toronto, to Fish Joy, the modest fish and chips shop where his blue-collar parents took Mr. Hudson and his three brothers on Friday nights when they had a little spending money, provides a little perspective as he starts over in the business where he made his first fortune but where he also took a very public beating. He’s more than rich enough to retire, but the same hustle that took him away from Scarborough remains.
“It’s why I wanted to have lunch here,” he says as he slides into a chair, and recommends the halibut and chips special. “It’s all about your roots. I love it, it’s the competition, the challenge. And I also want to write – to finish this chapter up properly.”
Newcourt had all the trappings of a great entrepreneurial story. It grew from a dream of Mr. Hudson’s, an accountant, into a leasing company spanning 26 countries. It gobbled up competitors. It minted money, in profits and stock price gains. It became the second largest non-bank finance company in the world. And, right at the end, it nearly all fell apart.
Mr. Hudson had made a key error. He had shifted from his early practice of securing safe funding from investors such as life insurers to what he now calls the “heroin” of financial markets. After his final big purchase, a huge acquisition of AT&T Capital, Newcourt became totally dependent on the commercial paper market, borrowing at cheap rates for a few months at a time. It would turn around and lend that for long periods at higher rates, profiting from the spread.
That strategy made more money, but was much more risky. If Newcourt ever lost access to short-term money on good terms, the business model would break. When the Russian debt crisis of 1998 roiled debt markets, that’s what happened.
In early 1999, Mr. Hudson agreed to sell Newcourt to rival CIT Group Inc. for $4.1-billion (U.S.). But Newcourt’s earnings were falling apart, and the company had to accept a huge price cut to $2.4-billion to save the deal. A chastened Mr. Hudson, who was supposed to remain as an executive, left the company.
He left more than that, de-camping to Florida for what he now calls his eight-year “walkabout” to learn from his mistakes. He was rich, but guilty about the way that things turned out. Original shareholders of Newcourt made 120 times their money. But those who bought near the peak lost big when the company started to come apart.
“I ran away. It doesn’t take long to go from hero to a zero. It wasn’t a zero but it was a big dose of humility,” he says. “I thought I have to see if I could do it again in another business, where people don’t know my name, don’t know the story.”
He did it by investing in what he calls “a funky little business” called Hair Club for Men. From hair replacement to hairstyling, he took it on an expansion spree. He and his co-investors put up $25-million and sold the company for $210-million.
Next up was the weight loss business, as he invested in Herbal Magic, a chain of diet centres. It’s been a tougher slog, though Mr. Hudson expects to make money on it.
Then, in 2007 and 2008, the financial crisis hit. All around the globe, banks were pulling back on lending. Not only that, they were putting leasing assets up for sale. A manager with experience in leasing, with relationships at banks and insurers, could buy up leasing companies and fill the gap in the market. Mr. Hudson stepped back from Herbal Magic to start Element.
As the fish arrives, he chuckles. “When I tell my kids about this lunch they’ll be all over it.”
A family tradition is to periodically hop on bikes and cycle up from midtown Toronto to Fish Joy. The route is like going back in time in Mr. Hudson’s life, from the old-money neighbourhood of Rosedale east, through ravines and valleys that cut through progressively more working class areas of the city, concluding with a long ride under a set of high-tension power lines that angle northeast to the streets where he grew up. The restaurant looks much the same, but for a coat of paint, and “they used to have pictures of fish,” he says.
“I love Scarborough,” says Mr. Hudson, very much still a suburban kid at heart. He was a key fundraiser for Toronto Mayor Rob Ford, who rode support in the city’s outlying areas to victory, promising to build subways to areas like this.
“I would have loved to have had a subway, when I grew up out here, instead of spending 24 years hoofing it back and forth on a bus.” After the bus, it was a Ford Pinto with rusted out floorboards that he drove to York University, where he was studying. In winter, he would stretch a Hudson’s Bay blanket across his lap.
“That holds you in good stead when you stumble,” he says now. “You say, ‘It’s okay to stumble. I’m just going to pick it up and do it again.’ Having lived eight years in the U.S., it’s kind of a rite of passage. Until you’ve done it you haven’t really learned. In Canada it’s like, ‘Oh my God what did you do?’ You come back far more focused.”
His focus now is on avoiding mistakes. There will be no commercial paper. There will be no huge acquisitions outside North America. He knows his desire to grow is his strength, and his weakness.
“Anyone with enough coffee and the office door closed, will find a way of doing almost any deal,” he says. “I bought AT&T Capital. I bought 20 companies before that. Twenty-one wasn’t so good.”
That hasn’t changed. He is coming off a weekend spent largely in the office, looking at possible acquisitions, with a little time on a buddy’s boat on the side.
“I’m a growth guy. I wake up in the morning looking for growth.”
Knowing that, he now has rituals designed to keep him from doing something rash. When a big lending decision crosses his desk, he leaves it there 24 hours before making a call. And he pays more attention to what his trusted advisers have to say. Key among them is Steven Small, the dental anesthetist who originally staked money to start Newcourt. He was on the Newcourt board, and is now on Element’s.
As Newcourt grew, Mr. Hudson says he “listened less and less. Toward the end I wasn’t a very good listener.”
He is pickier now. Element has looked at 30 deals, and done two. He has his eye on an acquisition in the U.S.
As lunch wraps up, Mr. Hudson offers a tour of his old haunts. His parents’ old house, a tiny bungalow with one bathroom for four brothers, is tucked in behind the restaurant. Not far away is the house where he and his buddies could sneak a few beers. Around the corner is his high school, where the motto is “Nothing without great effort.”
It’s a fitting slogan for a comeback for the kid from Scarborough.
“It’s the work ethic. You don’t take much for granted.”
He grew up in Scarborough, with three brothers. His father was a heavy-duty mechanic.
The 54-year-old lives in Toronto. He has three children, aged 23, 15 and 10.
He went to York University, graduating with an honours bachelor of business administration in 1981.
He began his career as an accountant.
At age 26, he approached one of his clients, a dentist named Steven Small, with an idea for an equipment finance company. That company became Newcourt Credit Group, which in the 15 years from its founding in 1984 to its sale in 1999 grew from scratch to $36-billion in assets.
After that, he moved on to invest in and run Hair Club for Men, then Herbal Magic, a chain of weight-loss centres.
In 2007, he founded Element.
Mr. Hudson chaired the executive committee for Toronto’s 2008 Olympic bid, which finished second to the eventual winner, Beijing.
At the behest of former Ontario conservative premier Mike Harris, Mr. Hudson joined