The world today is truly different to what it was two months
ago, not least in the world of mergers and acquisitions of leasing
companies.
Previous to the current liquidity crisis, lessors based the
acquisition price of a target company on a multiple of earnings
before interest, tax, depreciation and amortisation (EBITDA). Now
it is unclear whether this is still the case.
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As one senior accountant told me recently: “I really have no
idea what it is based on anymore.”
Furthermore, this multiple used to be around eight – few today,
however, have any precise idea what this multiple is.
“It is definitely less than 20,” the same accountant
commented.
This is the theory of multiples, at least. Practice could be a
little different, as we saw in October when a clutch of banks paid
£1.2 billion for Porterbrook Leasing, the UK train lessor. In this
case EBITDA was £228 million, making a purchase price multiple of
6.1.
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By GlobalDataIf you believe the hype there are many lessors looking to
acquire, although if you look at the facts then this number is
dwindling; according to consultancy Corofin this year there have
been 31 UK leasing related acquisitions so far this year, against
an 11-year average of 58.
Acquisitive lessors must in any case balance several key
factors. Has the crunch tipped the balance in any particular
direction?
Sellers, in general, prefer to offload entire companies,
including all shares, rather than just the assets. This is mainly
as, in doing so, they benefit from substantial shareholding tax
exemptions.
This also balances out the hit they suffer from paying deferred
tax liabilities in advance of a sale (although lessors,
particularly in the rail finance sector, are getting good at
avoiding these, despite government efforts at a clampdown).
Lessors, on the other hand, generally prefer to acquire
portfolios of assets rather than whole shareholdings, largely as by
doing so they benefit from tax relief on assets.
Despite this seemingly natural obstacle to leasing industry
acquisitions, accountants who do very little but M&A in the
asset finance sector say increasing numbers of portfolios are up
for sale, and that acquirers can get discounts as they are
providing capital in a cash-poor world.
However, quite how the UK leasing arm of credit-crunched Singer
& Friedlander, with its deferred tax liabilities of more than
£15 million (and net assets of £5 million), could be in any
position to effect a sale is beyond me.
Furthermore, just last month, Banca Italease and VR Leasing
halted their joint venture plans, citing “current market
uncertainties” as the cause of the breakdown. Perhaps a careful
weighing up of EBITDA and tax issues meant in fact their marriage
simply made no economic sense.
