In his poem, "The Ballad of East and West," Rudyard Kipling writes: "East is east and west is west and never the twain shall meet." It would seem Kipling’s statement would hold true in most instances of an asset-based lending operation seeking to acquire a perfect fit in the equipment finance arena. However, such is not the case when considering the recent announcement announcing Crestmark Bank’s acquisition of TIP Capital.
In early October – shortly after the Crestmark/TIP Capital acquisition closed -- ABL Advisor spoke with Crestmark’ s chairman W. David Tull and TIP Capital’s president Scott Grady to better understand the rationale behind the union.
Tull explains, “We had created a strategic plan years ago which included moving away from a pure working capital operation to providing both term finance as well as equipment finance. We sought to add another product to our offerings at Crestmark as well as to add some different types of clients to our client base. From our perspective, we looked at a number of different equipment finance companies and leasing operations over the last few years. TIP was the right one for our organization.”
With Crestmark’s mission statement to guide the decision, Tull supports the fact that TIP Capital fits the bill in a number of ways. “We define ourselves as an innovative provider of financing solutions in niche markets,” he says. “One of the things that attracted us to TIP Capital is its strong expertise in technology leasing. This fits right in with what I call the Crestmark style … we have silos of businesses and TIP’s expertise in this area fit right into the master scheme.”
As with many financial institutions, Crestmark has continued to evolve throughout its existence. Since its founding as a factor in 1996, the Troy, Michigan-based business to business lender has expanded both in terms of its product offerings as well as its geographical footprint. “We recently initiated and SBA program that focuses on niche transactions. This initiative, along with the TIP Capital acquisition, represents thoughtful and calculated moves in line with our strategic plan.”
Crestmark & TIP: Here the Twain Shall Meet
On the other side of the transaction and from the TIP Capital perspective, Scott Grady is equally pleased with the acquisition. “From the big picture standpoint, M&A activity in our space has been pretty active over the past 12 to 18 months. People have been on the lookout to acquire assets indirectly to supplement their organic business plans.
“Over the years we’ve worked with 20-plus discounting partners … our bank partners, if you will. Crestmark had been one of these partners for about two years. We had worked on a joint venture with them. That afforded us to understand one another quite well … it was a bit like dating before you get married.”
Grady notes that as market conditions pointed favorably toward being acquired, he and the other executives at Tip Capital didn’t need to look very far for a suitable acquirer. Crestmark, whose headquarters are a mere five miles away from TIP Capital’s, was at the top of a very short list. “We had gotten to know Dave and his executive team and we knew it would be a good fit. Things worked out in a way that was much better than calling an investment bank, putting a book together and being purchase by someone you have met maybe twice.”
TIP Capital, which booked nearly $143 million in new business last year, brings to Crestmark a portfolio upward of $400 million comprised primarily of information technology, medical and energy-related assets. The acquisition serves to put Crestmark square on the map in terms of equipment finance. Yet the benefits are far from one-sided. Tull notes, “There were all kinds of compelling synergies in doing this transaction. Historically TIP has had to presell the assets they booked whereas we will now be able keep them on our books should we choose to do that. In addition, Crestmark’s cost of funds are significantly lower that TIP’s former cost of funds. Over time, the economics will continue to get better and better.”
“This acquisition,” adds Grady, “will allow us to be more competitive in certain markets. For example, it didn’t make much sense for us to pursue opportunities in the municipal dollar-out space previously. Now it does. From the small ticket standpoint, we will able to be more competitive and efficient due to our reduced cost of capital to participate in that vertical as well.”
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