Entrepeneur Steve Hudson poses in front of a truck he has financed in Toronto, April 8, 2011.J.P. MOCZULSKI
Element Financial Corp., on the heels of unveiling a half-billion-dollar acquisition, is still on the hunt for more transactions in its quest to build a dominant leasing and equipment finance company from scratch in record time.
On Friday, Element announced the purchase of General Electric Co.'s Canadian fleet leasing business, giving Element what it estimates is about 30 per cent of the Canadian market for leasing multiple cars to big companies. It will also give Element more purchasing power for products such as insurance and fuel.
The $570-million transaction eliminates a competitor in Canada, and an alliance with GE in the U.S. will allow Element to offer customers such as Tim Hortons cross-border fleet leasing services, said Element chief executive Steven Hudson.
That means Element does not have to buy a U.S. fleet leasing business. Mr. Hudson had been concerned that competitors that offered fleet leasing on both sides of the border would be able to offer a clients a package he could not.
"The fact that we can do that now protects us from that," he said. The GE deal "gives us everything we need, and allows us to commit capital elsewhere."
To fund the transaction, Element sold $261-million of shares through a group of banks led by GMP Securities, BMO Nesbitt Burns and Barclays. Like Element's last three equity financings, investor appetite for the stock led to an increase in the deal size at the last minute. (Investors who have bought earlier deals have done well, as the stock has soared in recent months.)
BMO is also putting up a $500-million credit line.
Element has been making a major purchase every few months, and still has a couple of acquisitions to go, said Mr. Hudson. He wants to add a truck and trailer finance business and an information-technology finance business.
"You can expect us to infill those businesses," he said in an interview.
Mr. Hudson said the fleet business has high returns relative to other finance business because of two factors. Losses are very low, and there is a lot of fee-based income from services such as providing gas cards and insurance to fleet clients. That helps push return on equity from fleet businesses to the 18 per cent to 20 per cent range, higher than the 15 per cent to 17 per cent from businesses such as equipment finance.
(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)
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