ECN Capital sells asset for US$1.25B
It started life as a cast off from a large public company, it then went wooing, unsuccessfully as it turned out, a special purpose acquisition company and until Tuesday, shareholders of ECN Capital must have felt like nobody wanted them.
That changed when the company — that until last fall was part of Element Financial — announced a deal to sell its U. S Equipment Finance Business to PNC Financial Services Group for US$1.25 billion.
The market l i ked t he news: on t he day, more than 20 million ECN shares changed hands and t he shares closed at $ 3.64 — a level not experienced in its short time as a public company. ( The key reason for the pop was that ECN sold the asset above i ts book value.) In a release, ECN said the proceeds will be used “to strengthen ECN Capital’s balance sheet and prepare for next phase of its strategy.”
At this stage it’s not clear what that new strategy will be. “It all depends on how they redeploy the capital,” noted one observer. “Some observers are likening it to a blind pool where you have to trust management to prudently deploy the capital. Today you don’t have visibility on the type of business they will be owing and the returns associated with that business.”
In a note, Paul Holden, financial services analyst at CIBC World Markets said the transaction “comes as a result of changing market dy- namics in the U. S commercial and vendor business.”
But it wasn’t always clear that part of ECN Capital’s business would be sold to a U.S. buyer.
Until one year back, ECN didn’t really exist as its activities were done under the umbrella of Element Financial. Then in mid- February 2016, Element announced a plan to separate into two publicly traded companies — a $ 19.5 billion fleet management company and a $ 7 billion North American commercial finance company.
At the time, Element — which had grown with the help of two large acquisitions, the US$1.4 billion 2014 purchase of PHH’s North American Fleet Management Business in 2014 and the $ 8.6 billion purchase of GE Capital’s fleet business in 2015 — said that the split was motivated by the desire to create shareholder value.
So last October Element shareholders agreed with the split and duly received one Element Financial share and one ECN Capital share. In that spin out ECN was deemed to have a fair market value of $ 4.41 a share — a level at which it did not trade. ( Tuesday ECN said its book value was $ 5.12 a share.)
Plans called to ECN Capital to acquire INFOR Acquisition Corp. a special purpose acquisition company that raised $ 230 million in its initial public offering in April 2016. But there was little incentive for INFOR shareholders to accept ECN Capital’s proposal. In midOctober, INFOR announced the plan “has been terminated by mutual agreement of the parties.”