Specialty Finance Acquisitions
In 2021, there were 21 deals announced with a U.S. bank or thrift buyer and a specialty lender target. This represents a significant uptick from the prior two years and the highest level since 2017. Deals in 2021 were largely driven by a desire to deploy excess liquidity and grow loans. Other drivers of deal activity include efforts to find a niche in the face of competition or diversify revenue and earnings. Through May 19, six deals had been announced in 2022.
Specialty lenders encompass a variety of business models including mortgage companies, equipment finance, and auto lenders, among others. Over the past ten years, equipment lenders have been the most popular targets for bank acquirers. Other popular categories include niche commercial lenders and diversified mortgage companies.
Rationale
The premise for a bank/specialty lender deal is intuitive: higher yielding loans funded with cheap/excess deposits. Such a deal also allows the acquirer to diversify the exposure in their loan portfolio. One reason equipment lender deals in particular have been more common is the generally steady demand for equipment. Companies are buying equipment as they expand in good times, but critical purchases cannot be scrapped in a downturn either.