Element Financial buys bulk of GE’s fleet business
Element Financial Corp. is buying most of General Electric Co.’s fleet business for $8.6 billion, a “game-changer” of a deal that will more than double the Canadian company’s presence in the growing corporate-vehicle market.
Under the terms of the transaction announced Monday, Element will acquire GE Capital’s fleetmanagement operations in the United States, Mexico, Australia and New Zealand. These assets will be added to GE’s Canadian portfolio, which Element bought for $570 million two years ago.
“It is a game-changer, but it’s consistent with our message, because we’ve been saying for several years that we want to have the leadership position in fleet,” Element CEO Steve Hudson said Monday.
The business — which counts major companies such as Tim Hortons Inc., Comcast Corp. and DuPont among its customers — covers the gamut of corporate-fleet management, from ordering and financing the vehicles to providing telematics that can keep track of employees’ movements.
“We have 42,000 vehicles with Comcast, so the service manager sitting in Fort Lauderdale can call up and say, ‘OK, of all the service orders I have this morning, where are the vehicles?’” Hudson said.
“And through the telematics on the vehicles we can say, ‘They’re all sitting at a Dunkin’ Donuts. Let’s get them back on the service call.’ ”
The deal will add $7.1 billion in net-earning assets to Element’s existing fleet-management business, which had about $6 billion in total earning assets as of March 31. It is expected to boost Element’s annual earnings per share by 20 per cent once fully integrated in 2017.
Element is taking on a significant amount of leverage to finance the deal, which will be funded through $5.9 billion of new debt and the proceeds of a recent $2.7-billion capital raise. However, Hudson said the scale of the deal has lowered the company’s borrowing costs.
“We got a better deal with our banks this morning because we have a bigger balance sheet, so it reduced our borrowing costs,” he said, adding that approximately 65 per cent of Element’s fleet clients are investment grade.
“We’re not borrowing to lend money to me and my son for a car, — we’re lending money to DuPont, to Comcast,” he said.
“So yes, there’s more leverage, but it’s leverage being used for managing high-quality assets.”
The Kroll Bond Rating Agency reaffirmed Element’s BBB+ rating Monday, saying fleet management is the least risky part of the company’s business, which also includes equipment financing for the aviation, rail, commercial and vendor sectors.
“KBRA views the overall impact of the transaction as credit positive as it bolsters Element’s presence in North America as a dominant fleetmanagement company, expands the company’s North American reach and the scale of its operations, while also providing the company with greater capacity to undertake international operations,” the bond rating agency said in a report.
This is not Hudson’s first time developing an equipment-financing business. In the 1990s, he built Newcourt Credit Group into the world’s second-biggest non-bank lender before the Russian debt crisis hammered the company and forced Hudson to sell it for a fraction of its peak value.
Hudson has said that he’s taking a more conservative approach at Element, but he also stressed Monday that he’s not done expanding the business.
“This message of growth at Element is not over. It’s not over. It’s not over. I want to emphasize that,” he said during a conference call with analysts.
“We’ll be thoughtful and measured on our integration and pursue that with all rigour. But growth will continue in our business.”
We’re not borrowing to lend money to me and my son for a car — we’re lending money to DuPont, to Comcast.