National Leasing deal a winner

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This article was published 11/12/2009 (5873 days ago), so information in it may no longer be current.

Getting into bed with a banker as its new owner will give Winnipeg’s National Leasing access to more and cheaper funds to grow its lease portfolio, officials on both sides of the company’s sale said Thursday.

"We will be able to strip out a lot of borrowing expenses — legal, rating agency, contract expenses," said National Leasing CEO Nick Logan. "Since the credit crisis, everything got more and more arduous. A lot of it was unproductive work and a lot of those fees and expenses we will be able to eliminate."

Canadian Western Bank announced late Wednesday it had purchased National Leasing, one of Canada’s top-ranked commercial leasing companies, for $130 million.

Leasing companies need to first pay for the equipment they lease to their clients. To do that, they need access to credit.

But Logan said that over the last 18 months, it had to establish borrowing arrangements with about 11 different financial institutions, an expensive and time-consuming undertaking.

Leasing companies also raise money by selling off the income stream of their leases by bundling them up for pension funds and insurance companies.

But that so-called securitization market has virtually dried up, with the high profile collapse of the asset-backed commercial paper market.

Being owned by a bank, on the other hand, gives National Leasing access to some of the cheapest funds around — chequing and savings deposits — to grow its lease portfolio.

But Canadian Western Bank is not paying 9.8 times National Leasing’s profits last year — a reasonable price, according to one bank stock analyst — just to allow the company to tread water.

"There is a lot of potential growth and potential earnings growth with a significantly lower funding base," said Larry Pollock, CEO of Canadian Western Bank. "They are retail funded now. We will bring in the wholesale element."

In a research report on Thursday, Sumit Malhotra, an analyst with Macquarie Capital Markets, said, "In our view the primary synergy in this transaction is the ability to access the lower-cost funding streams of a chartered bank such as CWB."

Even in a poor economy where its customers were less inclined to spend money on new equipment, which is the bread and butter of National Leasing’s business, the Winnipeg company still generated about $13.3 million in profits.

Logan said that over the last five years National Leasing has produced annual returns on equity of about 20 per cent.

Pollock refers to National Leasing as the jewel in the crown of Canadian leasing companies and David Powell, CEO of the Canadian Finance & Leasing Association, said it is an apt description.

"National Leasing is a model for the rest of the industry," he said. "They were very avant-garde, investing in new technology and adopting and implementing new technology."

Among other things, the company developed an internal, state-of-the-art credit scoring system.It was the largest domestically owned leasing company, not counting bank-owned operations of the Royal Bank, Scotiabank and HSBC, and has regularly been recognized as one of the best managed companies in the country. More than 80 per cent of its 300 employees owned shares in the company.

"We looked at other leasing companies," Pollock said. "These guys are the class act of the industry. We are very impressed with Nick and his management team."

The company was owned by management, employees and the Chipman family holding company, Megill-Stephenson, and they will retain a 25 per cent stake through preferred shares.

Logan said one of the most important features of the deal is that the National Leasing management team will be able to continue to run the company as a stand-alone operation.

"We wanted a partnership with a bank that would let us do our own thing," Logan said. "They already manage some satellite operations. That is the way we wanted to partner with them — to be able to be stand alone."

martin.cash@freepress.mb.ca