Commercial finance M&A activity is gaining momentum as strategic buyers, private credit investors, banks, and specialty finance companies pursue growth opportunities across equipment finance, asset-based lending (ABL), and factoring. In this interview, Tim Stute, Managing Director & Head of Specialty Finance, and Chris Hemler, Managing Director, of Hovde Group discuss the key trends shaping the specialty finance M&A market, including rising buyer interest, evolving valuations, and the growing influence of private credit. They examine what makes commercial finance companies attractive acquisition targets, how technology and credit performance impact valuations, and why well-positioned platforms continue to command premium pricing. Stute and Hemler also share their outlook for equipment finance M&A and broader commercial finance industry consolidation through 2026.

Michael Toglia: We've seen a modest increase in M&A activity involving commercial specialty finance companies so far this year. What's driving this trend?

Tim Stute: There has been a bit more activity this year, but we’re still not at the same level of transaction volume that we’ve seen in prior, more robust markets.  We’ve seen well capitalized, strategic buyers continue to pursue acquisition opportunities across asset-based lending (ABL), factoring and equipment finance as a means towards adding market share and experienced personnel that is so hard to come by.  But so far, there has not been a plethora of independently owned sellers.  However, we think that’s going to change as the year progresses.

Chris Hemler: Several things are combining to help boost M&A activity. We’ve seen an increase in demand from credit investors for asset-based financing strategies given the downside protection of hard collateral and a “higher for longer” interest rate environment, which puts stress on cash flow-based covenants. The Federal Reserve’s rate cuts late last year also helped. They lowered borrowing costs which improves the math for buyers and gives sellers more confidence that bids will reflect the value they’ve built. Time is also playing a role. Many owners who shelved sale plans during the 2022 to 2024 rate cycle are now three or four years further along, and the succession and liquidity considerations that originally motivated them haven’t gone away. 

Toglia: Is private credit the most active buyer group?

Stute: Private credit firms remain extremely active, but we're seeing a broader buyer universe. Strategic buyers, including select banks, specialty finance companies, business development companies, insurance-backed asset managers, and family offices are all pursuing acquisitions. In most cases, buyers are looking to secure enhanced origination capabilities rather than simply acquire assets.

Hemler: Private credit firms have certainly been grabbing more of the headlines – they’ve been very active in establishing (and publicizing) sizeable forward flow programs and funding partnerships. But Tim is right, we’ve seen competitive offers coming from all types of buyers on the platform transactions we’re working on.  

Toglia: What types of commercial finance companies are attracting the greatest interest from buyers?

Hemler: With the amount of capital that has flooded the asset-based finance market in recent years, competition has become a real challenge. So, the businesses drawing the most interest are the ones with origination engines a buyer couldn’t easily replicate, whether that’s an imbedded sourcing network, deep industry specialization, or a 20-year track record of executing for your clients and referral relationships. Earnings and cash flow generation have also become incredibly important. The benefits of scale can come at different sizes for different companies, but when you sell you want to aim to be maximally profitable for your business to drive a premium valuation.

Stute: In addition to what Chris said, buyers are focused on firms with top-notch management teams, strong credit performance, scalable technology platforms, and solid risk-adjusted returns. Healthcare receivables finance, staffing finance, and government receivables finance remain particularly attractive because they offer strong collateral characteristics and defensible market positions.

Toglia: Are valuations improving?

Stute: It really depends. Valuations for high quality platforms have remained strong, even in recent years as interest rates cycled higher. Buyers are paying premiums for businesses that demonstrate consistent earnings, strong underwriting discipline, and scalable funding structures. The gap between top-tier platforms and average performers remains significant, however, and that results in differences in valuation.

Hemler: We’ve seen top-performing companies trade recently at multiples that match or occasionally exceed those achieved during the 2021 peak, so attractive valuations are out there if the opportunity is too good for a buyer to pass up. But generally, the increase in M&A activity has been driven more by the bid/ask spread closing. The average performers that have traded had to come down from their 2021-era valuation expectations, while lower funding costs and additional dry power have lifted what buyers can justify paying. Premium valuations exist for platforms with scarcity value, and average businesses are transacting at fair but unremarkable prices.

Toglia: How has the private credit boom affected M&A activity among commercial finance companies?

Stute: Private credit has become one of the most important drivers of consolidation. Large private credit managers increasingly view asset-based lending and equipment finance as strategic growth areas. Rather than building origination capabilities organically, many are acquiring established platforms or entering into partnerships with specialty lenders. Asset-based finance has become one of the fastest-growing segments of private credit.

Hemler: Beyond driving consolidation, it has given business owners new options to fund growth. A decade ago, if you ran an independent finance company and wanted liquidity or cheaper funding, your realistic paths were selling to a bank or another finance company. Today an owner can enter a forward flow partnership, take on a minority investor, or structure a hybrid arrangement that provides capital and funding efficiency without giving up control. In the near term that probably reduces the number of outright sales, because some owners who would have sold are partnering instead. But these partnerships are helping build larger, better-capitalized companies whose founders and institutional backers will still need an exit eventually. So, in addition to driving consolidation today, private credit is helping build the pipeline of sizeable sellers in the future.  

Toglia: Are banks becoming more active acquirers?

Hemler: Recently banks have been net sellers of commercial finance platforms, though we expect acquisition interest to build from here. Bank M&A in 2025 was the busiest it's been since 2021, and approval timelines have shortened materially, which increases the focus on deals of any kind. In the near term, bank-on-bank consolidation will compete for attention with finance company acquisitions, but post-merger business reviews are already producing divestitures of non-core specialty finance units, which creates supply for the rest of the buyer universe. And once these combined banks digest their mergers, they'll be larger institutions with bigger deposit bases looking to diversify into C&I assets, which is historically when banks come shopping for commercial finance companies. 

Stute: Chris is right but we have seen select banks acquire commercial finance assets/platform this year (i.e., Gulf Coast Bank & Trust Company and Renasant Bank’s Republic Business Credit subsidiary). However, as Chris noted, we’ve also seen several banks exit their commercial finance businesses this year, like Third Coast Bank, Amegy Bank and United Community Bank.  

Toglia: What are buyers most focused on during due diligence?

Stute: Credit quality remains the primary focus. Buyers are spending more time evaluating collateral performance, concentration risks, customer retention, reserve methodologies, fraud controls, and portfolio stress-testing. Growth potential is the other major diligence focus right now.  If a seller requires a premium to pull the trigger, the buyer wants to make sure the return is going to be there over the long haul. 

Hemler: I'd emphasize fraud controls, particularly portfolio monitoring and collateral verification, because they have become increasingly important for buyers’ boards and investment committees over the past year. The Tricolor and First Brands bankruptcies last fall were fraud and controls failures rather than credit failures, but they laid bare that an asset-based structure only works when collateral and character support it. In the commercial finance processes we've run since, buyers have heavily scrutinized collateral quality and portfolio management procedures.

Toglia: Is credit quality deteriorating across the industry?

Hemler: It's important to distinguish credit deterioration from fraud, because recent headline losses were largely the latter. Setting those aside, what we see is stress that's concentrated rather than systemic. The freight market is gradually emerging from a nearly four-year recession, and small business bankruptcy filings remain elevated. But most lenders' portfolios have held up well, and equipment finance portfolio performance in particular has been strong by historical standards. Where it shows up in M&A is in loss rate assumptions – buyers are modeling normalized loss rates rather than extrapolating the benign recent experience, and sellers with long, well-documented loss histories across cycles will benefit.

Stute: It’s a mixed picture for sure. Most lenders continue to report stable credit quality, but there are signs of stress in portions of the broader market, particularly with a few asset-based lending companies. As a result, buyers are scrutinizing portfolios more carefully and placing greater emphasis on historical loss performance and underwriting consistency.

Toglia: Are independent commercial finance companies facing greater competitive pressure?

Stute: Absolutely. Competition has increased from banks, fintech lenders, private credit funds, and large specialty finance platforms. Scale is becoming more important because larger firms typically have lower funding costs, broader product offerings, and greater technology investment capacity.
Hemler: The increased competition is most acute for mid-sized generalists who lack genuine differentiation in origination, industry expertise, or funding. Niche specialists continue to earn strong returns because their edge doesn't depend on having the lowest cost of funds; it depends on speed, structuring creativity, and knowing an industry better than the competition. I'd also note the funding gap between independents and banks, while real, has narrowed as private credit facilities and the securitization markets have become more efficient for well-run platforms. But to Tim’s point, competitive pressure itself is one of the biggest drivers of M&A. Certain buyers can create significant value through capital availability, cost of funds improvements or captive referrals, which can increase interest and valuations for well-performing but relatively stagnant businesses. And eventually as organic growth gets harder to find, combining becomes the rational answer. 

Toglia: Do you expect industry consolidation to continue?

Stute: Yes. In fact, we believe consolidation will accelerate through the remainder of 2026. Many smaller lenders face intense competitive pressure, rising employee retention costs, succession issues, technology investment requirements, and sometimes cost of funding challenges. Strategic combinations offer a way to improve scale, reduce operating costs, and diversify portfolios.
Hemler: I'd point out that consolidation in this industry tends to compound. Every acquisition creates a larger competitor with better funding costs and broader capabilities, which raises the bar for everyone else and pushes the next group of owners toward the same decision. Layer on the succession dynamics across a founder-led industry and the road points in one direction.

Toglia: What role is technology playing in M&A valuations?

Stute: Technology can be a large differentiator that provides a valuation boost. Buyers increasingly reward lenders that have built proprietary tech platforms that use AI to automate portions of the process, such as underwriting workflows, customer onboarding, and even fraud detection. Technology is a core value driver but it’s important that it not be viewed as a substitute for material credit decisions.

Hemler: Tim is right, but technology generally earns a premium only when it shows up in the financials. Buyers have become much sharper at testing technology claims in diligence. What actually gets paid for is technology that demonstrably lowers the cost to originate and service, speeds decisioning without degrading credit outcomes, or creates proprietary data a competitor would need years to accumulate. If the technology story is real, it's visible in operating efficiency, loss rates, and customer retention, and the valuation follows the numbers. 

Toglia: What's the biggest challenge facing the commercial finance industry today?

Hemler: Standing out from the crowd. There has never been more capital in this industry, which has diluted the value of the product everyone is selling (i.e. money). When your product is a commodity, it’s natural to compete using price or structure, both of which are currently under stress. The hardest challenge for management and sales teams today is convincing a borrower to choose them when their offer may not be the cheapest or most aggressively structured. The answer may be industry expertise, relationship quality, speed, service, or ancillary product capabilities competitors can’t offer. The companies that have an answer to this challenge in their sector will command premium valuations when they sell.

Stute: Another huge challenge is balancing asset growth with maintaining credit discipline. Capital is plentiful, competition is intense, and many lenders want to grow aggressively. The firms that maintain underwriting standards while scaling their platforms will likely create the most long-term value.

Toglia: What is your outlook for commercial finance M&A through the end of 2026?

Stute: We expect activity to remain robust. There is significant capital available from private equity firms, private credit managers, banks, and strategic acquirers. High-quality platforms with strong origination capabilities and diversified portfolios should continue to command premium valuations.

Hemler: I expect the second half of the year to be the most active stretch this industry has seen since 2021 and 2022. The ingredients are all present: financing costs have come down, buyers have capital and a mandate to deploy it, and the seller pipeline has been building. Anyone contemplating a transaction in the next couple of years should at least invest the time to understand what their business is worth in this market, because conditions are more favorable than they have been in years.

Toglia: When you look across factoring, asset-based lending, and equipment finance, which sector do you believe offers the greatest growth opportunity over the next several years?

Stute: All three sectors are positioned well, but equipment finance may have the broadest tailwinds. Manufacturing investment, infrastructure development, technology modernization, and fleet replacement cycles are creating long-term demand for equipment financing solutions. Combined with strong investor appetite for asset-backed lending in general, the sector appears poised for continued expansion.  But remember that asset-based lenders and factors tend to perform quite well in both difficult economic cycles as well as expanding economies.  So opportunities for continued growth should exist in those sectors as well. 

Hemler: I agree that equipment finance has the clearest demand-driven tailwinds. The AI and data center buildout, reshoring of manufacturing, and fleet replacement cycles are generating capital expenditure that has to be financed, and last year was one of the strongest years for equipment finance volume on record. On the supply side, all three sectors will benefit from the ever-increasing availability of capital. A well-run platform in any of these sectors has access to funding, partnership structures, and exit options that didn't exist ten years ago. If I have to pick one, I'll take equipment finance on the strength of the demand picture, but execution and positioning within your industry will matter far more than which of the three sectors you happen to be in.
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Tim Stute, Managing Director & Head of Specialty Finance – Hovde Group, LLC
Tim Stute is a Managing Director and Head of Specialty Finance in the investment banking group at Hovde Group, based in the firm’s McLean, Virginia office, where he manages the top ranked M&A practice to the commercial finance sector (according to S&P Global Market Intelligence, 2019 through YTD 2026). Prior to joining Hovde, he was a member of Houlihan Lokey’s Financial Institutions Group. He has 25 years of experience providing capital markets and M&A advisory services to the financial institutions sector, with a particular emphasis on the specialty finance industry, including equipment leasing companies, asset-based lenders, accounts receivable factoring companies, and non-mortgage consumer lenders. Before joining Houlihan Lokey, Mr. Stute was a Managing Director and Principal at Milestone Advisors, LLC in Washington, D.C., which was acquired by Houlihan Lokey in 2012. While at Houlihan Lokey, and previously at Milestone Advisors, Stute was a top ranked senior banker in the specialty finance M&A sector, as measured by number of deals (according to SNL Financial LC, 2004 to 2016). Prior to joining Milestone in 2001, Mr. Stute was an Associate in the Financial Institutions Group of First Union Securities, Inc. (now Wells Fargo Securities, Inc.) in Charlotte, N.C. Mr. Stute holds a B.S. in Finance from Wake Forest University. Mr. Stute is licensed with the Financial Industry Regulatory Authority as a registered representative and holds the following licenses: Series 7, 63, and 79.

Chris Hemler, Managing Director – Hovde Group, LLC
Chris Hemler is a Managing Director on the specialty finance investment banking team at Hovde Group and is located in the firm’s McLean, Virginia office. He specializes in advising equipment finance companies, asset-based lenders, factoring companies and non-mortgage consumer lenders on sell-side and buy-side transactions, valuations, and debt and equity capital raises. Prior to joining Hovde, Mr. Hemler was a member of Houlihan Lokey’s Financial Institutions Group where he advised commercial and consumer finance companies, asset managers, insurance companies and other financial services businesses on a variety of strategic initiatives. Prior to Houlihan Lokey, Mr. Hemler worked in several financial and accounting positions at General Electric as a member of GE’s Financial Management Program. He holds a B.S. in Finance and a B.S. in Accounting from the Pamplin College of Business at Virginia Tech and is licensed with the Financial Industry Regulatory Authority as a registered representative, holding both Series 63 and 79 licenses.