Element decision to split swayed by major investors

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Element Financial Corp. says its plans to shake up its business were influenced by long-time investors that didn't want a chunk of the company to be sold.

The Toronto-based fleet management and equipment financing business said Tuesday that it will soon become two publicly-traded companies. Element Fleet Management will be a $19.5-billion international business with a fast-growing presence in North America. Element Commercial Asset Management will have $7-billion in owned and managed assets and will invest alongside institutional partners.

The move follows a big year for Element that included the $8.6-billion acquisition of General Electric's fleet business and a subsequent strategic review. Element thinks investors will better appreciate the larger fleet management side of Element's business without the distraction of the commercial financing side.

Element's current president Bradley Nullmeyer will head the fleet management company, which leases vehicles, services them and provides tracking systems needed to keep goods moving efficiently through all weather and business conditions. The plan is to expand services in the U.S. and Canada, as well as Australia, New Zealand and Mexico.

Meanwhile, Element's current chief executive officer Steve Hudson will lead the smaller asset management business, including the existing North American commercial and vendor finance unit as well as aviation and rail asset management. He says this company will have the greatest potential for acquisitions.

"I think the inorganic opportunities will be in the asset manager. There are a number of opportunities. You know it was rumoured we were looking at one in Canada," Mr. Hudson said on a conference call with analysts on Tuesday morning. Last month, Reuters reported that Element was among those talking to Bank of Nova Scotia about a sale of its equipment financing portfolio, which could be worth $1-billion.

"There are some significant [opportunities] south of the border that are important," Mr. Hudson continued. "There are some very attractive assets at extremely compelling prices. But we're going to do that in conjunction with our institutional investors."

Mr. Hudson said long-time investors quickly voiced opinions when Element undertook a strategic review of its Canadian commercial and vendor finance business last autumn. The intent was to to "harvest capital" in order to invest in the more important fleet management business. Mr. Hudson said at the time that there had been plenty of interest in the business.

Investors called "to say 'hey we've been here for many, many years for you, we would like to talk about building that business, not selling it,'" Mr. Hudson said. "We never started the sales process."

Among Element's largest shareholders are banks and asset managers such as Fiera Capital Corp., Sun Life Financial Inc., 1832 Asset Management LP and Royal Bank of Canada.

Management had long talks with investors about how to build the family of funds that will make up Element's asset management business. "I think having them involved in both levels, both in the funds and the top, is important to the long-term success of this company," Mr Hudson said. Element Asset Management has targeted $9-billion in assets under management by the end of the year.

The investors will be partners on some of the investment opportunities Mr. Hudson is eyeing now. Still, he said that he would never rule out asset sales in the future. "The market is always available for that. But we believe this structure will create superior value."

BMO Nesbitt Burns, Barclays Capital and Infor Financial are advising Element on its separation into two companies, which is expected to be completed before the end of 2016, pending shareholder and other approvals.