Thoughts on equipment finance business and portfolio consolidation

It’s a seller’s market.

That’s the takeaway from a recent article about the coming year in equipment finance M&A; and that’s after more than 50 acquisitions of portfolios or equipment finance companies in just the last six months.

As an equipment finance professional with more than 25 years of experience including more than 15 business acquisitions, I can tell you two things about a “seller’s market” – prices are going up and promises to management are going to be harder to keep. Buyers beware.

Consolidation is an emerging trend in equipment finance right now. Thanks to the pandemic which created opportunities from business disruption, previously unseen levels of liquidity, and a new level of operational efficiency expectations driven by cloud technology. We now may be in a “perfect storm” in equipment finance given how little cloud adoption that has occurred.

But while technology is important in consolidation – I lived through a dozen leasing system evaluations and had to merge or change systems an equal number of time - technology efforts are only one part of an integration effort. Technology is hard but changing how people work is harder.

Fortunately, acquisition, migration, and technology rationalization are well worn paths so there are best practices that help integration teams stay on track with the promises made as part of the acquisition. Generally, the combination of more sophisticated and objective analysis performed in the context of culture change management will help keep promises made.

Get pride on your side

Organizations always have heavily vested ownership of workflow – they do their best to do their best – and often that ownership becomes pride. Pride can be a proverbial double-edged sword. Sophisticated workflow and systems evaluation is not often part of the consolidation effort. Often the perspective is “We are bigger, they are smaller. Done.” As a result, pride becomes a force for resistance.

The key for integration leaders is to make pride a good thing. Instead of pushing “our way is the right way,” integration must remove the emotion with active listening and objective analysis. “How do you process cash” can reveal both “how” and “why” an organization is performing the process. Process efficiency is always a tradeoff – one loses some here and gains more there. By listening to how things are done the integration team can uncover the reasons for the steps while creating mindshare for any process changes.

The next step is an objective analysis of variances in workflow. Third party partners and objective analysis tools are very effective at this step. Objective views can help bring cultures together by learning from both – third parties and tools are not part of the “we/they” duo. When the workflow is acknowledged as part of an objective analysis the owners of that workflow are also acknowledged. Changes to the workflow are more likely to be seen as improvements and the pride of ownership becomes an asset for change..

Empathy with objectivity drive technology returns

Technology change is hard – like changing an engine on a car while racing. With consolidation it’s hard, but it must be done. The combined organization cannot have two enterprise systems AND achieve best-in-class performance. As with most applications of technology, empathy is the key. Technology is never the goal; it is a means to a better end. So, integration leaders must have empathy.

Often unusual processes come from empathy with customers, but there may be better ways to solve customer problems with new technology. Good integrators uncover and feel those experiences so that they can evaluate the requirements and constraints within which the process was defined. Then, again, objective analysis is key to success. In this case, platform limitations and gaps are identified, but also understood. Often bigger systems will not have the same limitations or gaps and so processes can be improved. An objective, requirements driven process will focus on risk reduction of any changes as well as delivering improvements.

The integrator’s role is to facilitate success, not dictate how to be successful.

Build relationships to cultivate trust

Followers follow leaders. Successful consolidation is all about leaders coming together with common goals. When I was leading an integration one of the key things I did was identify and engage key influencers. Typically, I would go to the senior business leaders such as the head of operations of the assimilating organization and lent them a sympathetic ear. When key process owners at senior levels built relationships, both sides of developed trust in the process. These early discussions also reminded everyone of the key questions driving our efforts – Why did this consolidation occur? What are the measures of success? What are our shared goals? How does the technology help those goals? Clearly defined goals and trust that all parties were aligned in their pursuit is critical.

An often missed advantage of creating trust is bringing the consolidation effort to conclusion. The hardest part of any integration is recognizing “good enough.” The combined team has to trust itself to know that point where the system can “go live” and the team can handle surprises. Without trust of each other and the capabilities of the new team, perfection can become an unreachable objective.

Like so many things in business, successful consolidations come down to fundamentals around the people: thoughtful processes, empathy, facilitation vs. direction, and above all, listening. The pace and intensity of consolidation in equipment finance has stepped up the need for an awareness of the dangers as well as the solutions.

The “seller’s market” is making returns on investments harder to achieve with expectations of shorter timelines. Lean into these challenges with the confidence that your leadership and people will determine the outcome. Find objective listeners and analysts to help build relationships and trust that will convert resistive pride into accelerated success.

 
Written by

Timothy Appleget

Director of Managed Services

Timothy joined Tamarack in March of 2021 after more than two decades in equipment finance with Wells Fargo. In his new role, he will be responsible for the development and implementation of Tamarack’s technology services offerings around data, IoT and workflow automation. Appleget brings a deep understanding of enterprise solutions in the industry built on years of experience of leading technology and business operations teams.

During his time at Wells Fargo, Appleget took on positions of increasing responsibility in which he developed an expertise in application and process development and support. Most recently as Business Support Manager, Appleget led a multi-year consolidation program mapping and porting access for more than 1,000 team members. Appleget also served as Vice President & Operations Manager for Equipment Finance. In this role, he was responsible for the equipment finance back-end service teams related to customer service, collections, workout, equipment management, contract adjustments and collateral management.

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