NewStar Financial Inc. announced the sale of its equipment finance business and related assets to Boston-based Radius Bank ("Radius"), a federal savings association, for approximately $140 million in cash.
NewStar Equipment Finance is an independent provider of flexible, equipment financing solutions to middle market companies nationwide. NewStar launched the business in 2011 and expanded it significantly over the last five years under the leadership of industry veteran, Steve O'Leary.
The transaction was structured as a sale of the business platform and related assets and generated net proceeds to NewStar of approximately $105 million, net of debt repayment, transaction fees and other retained liabilities. The purchase price reflected a premium of approximately 5% of NewStar's net investment in receivables totaling approximately $133 million and was approximately 1.2x book value, based on allocated equity capital of 30% of net receivables. NewStar expects to recognize a gain on the sale in the fourth quarter of 2016.
The sale of the equipment finance platform demonstrates a continuation of the Company's transformation from a bank-styled, diversified commercial finance company into a more specialized middle market direct lender with a focus on managing assets for institutional investors. It also reflects a strategic decision to exit businesses with economic models increasingly challenged by competition from banks and other lenders with access to lower cost funding. The cash proceeds from the transaction add significantly to the Company's liquidity position and enhance its flexibility to pursue other strategic priorities, including continued share repurchases. The additional liquidity also allows the Company to re-invest in its higher-margin, core lending and asset management businesses, which the Company believes are positioned to capitalize on favorable market trends, including a reduction in banks' leveraged lending activity and growing interest among institutional investors in middle market private debt.
NewStar's CEO Tim Conway commented: "I believe this transaction is a positive for all parties involved. The leasing platform is a great fit with Radius' growth strategy and being part of a bank should provide a significant competitive advantage that will allow the team and the business to achieve their true potential. For NewStar, the transaction generates an attractive financial return and further demonstrates the intrinsic value of our direct lending platforms that we believe is not fully recognized in our current share price. The successful sales of both our equipment finance and asset-based lending businesses have added significantly to our liquidity position and enabled us to streamline the company's operations, which is expected to reduce our cost base by more than 30% from our first quarter run-rate and improve returns."
Houlihan Lokey served as financial advisor and Locke Lord LLP served as legal counsel to NewStar in connection with the transaction.
NewStar Financial, Inc. is an internally-managed, commercial finance company with $6.6 billion of assets managed across two complementary business lines — middle-market direct lending and asset management. The Company's direct lending activities are focused on meeting the complex financing needs of companies and private investors in the middle markets through specialized lending groups that offer a range of flexible debt financing options.