The Tax Lien Certificate market offers a lucrative investment opportunity with diverse dynamics across various states. Understanding the specific auction processes and market conditions in each state is a critical yet overlooked aspect for new entrants. There are only a handful of national players within the industry, and as current market dynamics push out the less sophisticated players, the remainder stand to benefit from enhanced yields and outsized growth and improved returns. We see significant opportunity for investors over the next 24-36 months, as Certificate supply increases and the competitive bidding environment rationalizes. Tech-enabled players that span multiple geographies … [Read more...]

The commercial lines insurance premium finance industry offers an attractive investment opportunity for commercial banks, in particular. The asset class has a track record of consistently delivering strong risk-adjusted returns with low credit losses. In a challenging macroeconomic environment, borrowers are likely to leverage premium financing to better manage cash flow and liquidity, accelerating growth for premium finance lenders. Two decades of industry consolidation has resulted in a limited inventory of insurance premium finance operations available for acquisition. AFCO’s recent acquisition of BankDirect has further consolidated the industry but has also given smaller players a … [Read more...]

While market headwinds sober our outlook to some degree in the coming year, Colonnade believes that the fix & flip lending industry is an attractive long-term investment opportunity. The industry serves an important need in the value chain, and demand for its services will continue to increase. M&A activity can fortify the “survival of the fittest” – larger, established players will command a competitive advantage and weather the storm. We expect significant investment activity and consolidation in the sector over the next 24 months. … [Read more...]

Our previous discussion of the home warranty industry highlighted the strong fundamentals and drivers of M&A activity in this market. The home warranty industry enjoys compelling industry fundamentals, including reoccurring revenue, and strong growth, margins, and cash flows. The largest players continue to acquire well-performing, high-quality local and regional players. Combined with obvious exit alternatives, the home warranty segment seems like a natural market to attract institutional investor interest. In this report, we highlight four major themes relevant to M&A activity: The big are getting bigger;Industry players benefit from strong retention and renewal rates;The … [Read more...]

Since Colonnade last commented on the small ticket equipment leasing and finance industry in September 2018, the sector has been performing well. Volume has grown steadily, capital has been readily available, some new players emerged and there has been significant acquisition activity. The environment abruptly changed in early March 2020 as the scope of the coronavirus crisis emerged and all levels of government began to take necessary, drastic actions to curtail person-to-person transmission of the virus. These actions have pounded the economy, which will seriously impact all financial institutions that fund small to mid-sized businesses. … [Read more...]

As we reported in our April 2015 industry commentary, insurance premium finance is a well established, high margin, high growth commercial lending activity that generates low credit quality costs. We estimate the commercial segment has increased to roughly $35 billion of annual originations. … [Read more...]

Below-prime auto finance is out of favor with private equity investors. The wave of investments in 2010-12 led to heightened competition and loose underwriting, followed by a spike in delinquencies and losses. The result is a significant decrease in new equity capital available to the sector. While banks that lend to the below-prime auto finance industry are more cautious and selective, senior debt availability remains strong for performing industry participants due, in large part, to the asset-backed securities market. … [Read more...]

For almost 100 years, the tax laws of the United States have allowed investors to defer taxes on the gains generated by a property sale if the proceeds are properly reinvested in a "like-kind" property. … [Read more...]

Small ticket equipment finance and leasing companies are a significant source of funding for capital equipment. The small ticket equipment finance/leasing segment is significant, accounting for about one-third of the total $1 trillion of annual equipment leasing and finance volume in the United States. These lenders/lessors focus on transactions of $250,000 and below (including “micro-ticket” deals of under $25,000). The participants in this sector of the commercial finance market are surprisingly diverse, ranging from major banks to nimble independent firms. Go-to-market strategies vary as well – most firms in the sector originate through channel partnerships with equipment manufacturers … [Read more...]

Consolidation is accelerating in the home warranty industry, as the largest players continue to acquire well-performing, high-quality local and regional players. We expect financial sponsor interest in the broader service contract industry to spill over to the home warranty segment. The home warranty industry enjoys compelling industry fundamentals, including strong growth, margins, and cash flows. Combined with obvious exit alternatives, the home warranty segment seems like a natural market to attract institutional investor interest. … [Read more...]

The small business financing market opportunity available to non-bank lenders is large and has expanded as banks retreat. Non-bank commercial finance firms use various business models to originate transactions and manage risk. Newer entrants are deploying online platforms in an effort to rapidly gather assets and gain market share. Traditional firms rely on established origination channels and analytical tools but are generally augmenting their platforms with technology investments to speed response time and efficiency. Some firms are acting as intermediaries – originating and underwriting transactions for other lenders (usually banks) that lack the focus, expertise, or scale to build their … [Read more...]

The consumer debt settlement industry has been experiencing a resurgence since the shake-out of 2010 - 2011, and we anticipate continued growth in the sector. This growth, along with the intrinsic returns of debt settlement, will drive investor interest in the space. Successful debt settlement firms are likely to be targeted for acquisition by private equity firms and other investors in the coming years. … [Read more...]

First things first: The below-prime automobile finance sector is not a source of systemic risk to the U.S. banking system or the global economy. This segment of the consumer lending market simply isn’t big enough to create the next 2008 style financial crisis. According to the Federal Reserve Bank of New York’s February 2016 Report on Household Debt and Credit, auto loans accounted for just 9% of total household debt outstanding. Auto loans to borrowers with below prime credit scores account for roughly one-third of the market, so below-prime auto loans only comprise 3% of household debt nationwide. In contrast, home mortgages constitute 68% of total household debt. Commentators that equate … [Read more...]

The legal funding services industry is a collection of related investment businesses that allow investors to participate in the financial outcomes of the U.S. legal system. The industry is built on a shift in perspective – legal claims are assets that can be harvested. … [Read more...]

Strong U.S. commercial banks – flush with deposits, pursuing loan growth, and in good standing with regulators – are actively seeking to acquire specialty commercial finance platforms. Banks are attracted to specialty commercial finance businesses that offer high yields, diversification of assets and earnings, and returns that are superior to their core banking business. Assetgenerating platforms such as insurance premium finance are in high demand. … [Read more...]

The alternative asset custody services sector is an attractive industry for both private equity investment and strategic buyers (commercial banks and other financial services firms). Favorable industry dynamics, high-value revenue streams, and compelling economics are characteristics that appeal to a broad range of potential buyers. There are a number of alternative asset custodians owned by entrepreneurs that are reaching retirement age and have no obvious successors. We expect to see a significant increase in acquisition activity in the alternative asset custodial services industry. … [Read more...]

Our market commentary in February 2013 pointed out that the below-prime automobile finance sector attracted strong investor interest in the 2011 – 2012 post-recession credit recovery. We also expressed our opinion that the key risk in the sector was over-funding, which could cause credit underwriting and risk pricing standards to deteriorate. We recently attended the National Automobile Finance Association (NAFA) conference in late May and have had continued conversations with industry insiders over the past several weeks. … [Read more...]

The U.S. insurance distribution market continues to consolidate, and valuations are rising. Although the absolute number of transactions declined in 2013, the number of large deals and the valuation metrics of significant, well-run agencies and brokerages increased markedly. Improved operating performance, a rebounding U.S. economy, and an influx of capital from private equity investors have driven transaction multiples above pre-crisis levels. Stronger P&C pricing is also a factor behind the uptick in agency transaction multiples, as buyers are factoring in a firming market into their valuation calculations. … [Read more...]

Payment plan providers for the F&I industry offer strong returns and a compelling diversification strategy for banks seeking to alleviate their dependence on traditional commercial and industrial (C&I) lending. Payment plan providers (aka warranty finance or VSC finance), like other specialty finance niches, are attractive to banks because of the relatively high yields, low losses, and short duration. Private equity firms, too, are attracted to the sector because of the high returns and opportunities to ultimately sell to commercial banks. … [Read more...]

The Alternative Financial Services industry is attracting considerable investment interest due to recent macroeconomic shifts and substantial regulatory changes, factors that are dramatically altering the consumer finance sector. … [Read more...]

Insurance agents and brokers in the U.S. are benefitting from the beginning of a long-awaited hard market, a slowly improving U.S. economy, and increasing complexity in the health and benefits markets. Consolidation – long a path for revenue growth in the industry – continues at a heated pace, as strategic buyers and private equity-backed players rush to grab share ahead of rising P&C pricing. Additional private capital is eagerly seeking entry, providing a floor on valuations. Insurance agents and brokers with revenues in excess of $30 million are in high demand, allowing acquirers to efficiently add scale, augment leadership, extend the geographic reach and increase product breadth. … [Read more...]