Financier Steve HudsonJ.P. MOCZULSKI/The Globe and Mail
Financier Steve Hudson promised he was going to grow his new leasing company fast, and he's living up to it.
Mr. Hudson's creation, Element Financial Corp., has reached $1-billion in assets in a little more than a year after agreeing to buy an auto-leasing business from Bank of Nova Scotia on Tuesday.
Mr. Hudson has always been in a rush to build Element, believing there is a short window of maybe two years created by the financial crisis, which caused many lease-finance companies to scale back in Canada. It's that possibility that drew him back into the finance business that he left after selling Newcourt Credit Group in 1999 for $2.4-billion.
His first really big deal with Element was to buy a Quebec leasing operation called Alter Moneta last summer. In addition to assets, the Alter Moneta purchase also gave Element many of the back-office systems it needed.
Now, with the purchase of TLS Fleet Management from Scotiabank for $147-million plus debt, Mr. Hudson has added a business with more than $430-million of assets. TLS is strong in leasing fleets of sedans to corporations with travelling salespeople, but Mr. Hudson believes the business can be grown fast.
The business can be expanded to include more trucks, such as panel vans, and also there's room for growth in Quebec where Element can use the sales expertise purchased with Alter Moneta. The third leg is using TLS to get in the door at corporations, then selling more equipment leases, another one of Element's strategies.
"I think we can double the size," Mr. Hudson said in an interview. He said he likes fleet leasing because of the low losses and the security, which comes in the form of a covenant from the corporation as well as the car as collateral.
"This is tailor-made for us – we know the asset very well," he said, adding that at Newcourt fleet leases were among the best performing assets.
The businesses are so good, he said, that they rarely come up for sale. TLS was a special case because Bank of Nova Scotia was a motivated seller. The bank ended up taking control of the leasing company in the financial crisis, when it ran into trouble. Normally, banks aren't allowed to own a car-leasing company (auto dealers have lobbied hard to keep them out of the business). However, given the circumstances, regulators made an exception. Scotia was allowed to take control of TLS, but had to exit by 2014.
Element's bankers at GMP Securities found the asset inside Bank of Nova Scotia, and Bank of Montreal stepped up with a big loan to fund the transaction. Cash for the equity portion of the purchase is coming from an $87-million bought deal stock sale led by GMP, Barclays Canada and BMO. Element sold 14.3-million warrants at $5.25 apiece, with each warrant exercisable for one common Element share.
Mr. Hudson said he's not done doing deals. He expects TLS will be a quick integration, and he's still on the hunt for a company that specializes in small-ticket leases of a few thousand dollars.