Merger mania is hitting the fleet market once again. We’re hearing about potential OEM consolidations and we now have Element Financial Corp. expanding its foothold in the U.S., with the acquisition of GE Capital Fleet Services on the heels of its recent purchase of PHH.
There are a lot of people with a lot of capital out there looking for a return. So, it’s not inconceivable there would be further activity before this is all over. Some people may not remember that there were more than 1,200 lessors in the market just 15 years ago. Consolidation, largely done by GE, reduced that number to less than 50 with really only about a dozen companies of significant size.
Like most industries going through consolidation, the jury is still out on how this will affect the customers. There are some potential lessons from the most recent acquisition of one of our “original six” lessors by a publicly traded parent company. At the time of the acquisition, we were treated to several pronouncements about leveraging efficiencies, back office consolidations, and a promise of huge leaps in technology.
Those of us who were familiar with the deal thought the company was already very efficient. We thought it was pretty close to cutting-edge from a technological standpoint. And, we thought it had a very talented staff. Apparently, the really smart bankers from New York came to feel the same way because now that we’re down the road a bit from the acquisition, the company is still doing well, still being run by the same talented people, and the customers seem happy.
I’m not sure how many of those synergies actually got leveraged in the end but the investment bankers were smart enough to realize they had a good thing going and wisely decided not to screw it up.
It will be interesting to see how this latest deal plays out for the investors and, more importantly, for the customers. Our data indicates GE Capital Fleet Services has some of the happiest customers in the fleet market. We know where they rank when it comes to technology and pricing, too. We also know the business is staffed with greatly motivated, engaged, and smart fleet veterans. It would be a shame to see that get derailed in the search for mythical synergies.
Fleet leasing can best be characterized as a highly competitive low margin business with an 18-24 month sales cycle. How could anyone on Wall Street not love that? Of course, most outsiders are going to look at that and think they can probably come in and shake up a bunch of things to boost sales and margins, and maybe shorten that sales cycle a little.
For the most part, FMCs are run by a number of smart and experienced executives; the mousetrap is pretty good already. There will undoubtedly be more evolutionary changes in the years to come, but it seems unlikely there will be more revolutionary changes any time soon. Of course that could all change once the market gets flooded with self-driving Teslas powered by some magical combination of cheap and inert products.
For those of you sitting on the sidelines and worrying that your FMC may be the next takeover target, I’m going to go out on a limb and suggest there probably aren’t going to be a bunch of further acquisitions any time soon. It will take a while for the market to settle down and for the customer base to settle down.
History tells us acquisitions lead to significant customer defections, which leads to a bit of instability in the market. Any further buying and selling probably won’t take place until that settles down.
But, then again, there is a lot of money out there looking for a home.
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