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Chesswood to Acquire Blue Chip Leasing and EcoHome Financial

February 26, 2015, 07:15 AM
Filed Under: Mergers & Acquisitions

Chesswood Group announced that it has entered into an agreement to acquire Blue Chip Leasing Corporation ("Blue Chip") and EcoHome Financial Inc. ("EcoHome").

Blue Chip is a tenured, prime, small ticket equipment finance company serving brokers and vendors from coast-to-coast in Canada. Blue Chip has almost two decades of experience in the Canadian commercial leasing industry, and had net finance receivables of $74 million as of September 30, 2014.

EcoHome provides financing solutions to the heating ventilating and air conditioning (HVAC) and home improvement markets. This is an attractive market generally characterized by the high credit quality that Canadian homeowners demonstrate along with longer terms on the related loans and rentals. EcoHome had net finance receivables of $47 million as of October 31, 2014.

Transaction Highlights

This transformative acquisition is expected to enhance Chesswood's financial and operational strength and growth prospects, in several important ways:

  • Establishes a North American Platform. Allows Chesswood to leverage product and target market expertise in both Canada and the U.S.
  • Enhances Scale. Significant scale is gained, with a pro forma portfolio of net finance receivables of $315 million as of September 30, 2014.
  • Financially Attractive with Strong Cash Flows. The proposed acquisition is expected to be high single-digit accretive to earnings per share in the first full year of operations. This accretion and the enhanced growth opportunities are expected to deliver strong free cash flows and support Chesswood's track record of paying and growing dividends.
  • High Growth, Complementary Market. Entry into the high growth consumer finance market, which is counter-cyclical to Chesswood's existing businesses.
  • Greater Diversification. In addition to diversification through the counter-cyclicality of EcoHome's business, the acquisition provides further diversification in terms of products, geographic concentration and credit quality. Blue Chip's prime portfolio enhances the overall credit quality of the consolidated financing portfolios.
  • Management Team Fully Aligned and Incentivized. The acquisition adds management with almost two decades of experience. Each of Daniel Wittlin (CEO of Blue Chip and EcoHome) and Ed Dias (President of EcoHome) will be entering into multi-year employment agreements. In addition, Mr. Wittlin will join the board of Chesswood and will be assuming the role of Chesswood's Chief Operating Officer. Both Mr. Wittlin and Mr. Dias will be indirectly acquiring a significant number of Chesswood shares as part of the transaction, which will be subject to multi-year escrow arrangements. The purchase agreement for these acquisitions also includes significant incentives tied to performance of Blue Chip and EcoHome over the next several years.
  • Efficiencies and Growth Opportunities. The sharing of expertise and infrastructure is expected to generate synergies and accelerate growth.

"We are tremendously excited by the critical mass and breadth of programs this transaction provides Chesswood" said Barry Shafran, Chesswood's President and CEO. "Blue Chip brings years of experience in the prime equipment finance space and a pattern of growing profitability to Chesswood, which will allow us to have a complete product offering to the commercial equipment finance industry" added Shafran.

"Adding EcoHome to Chesswood's fold not only adds almost $50 million of net finance receivables to our portfolio, and earnings to our bottom line, it also allows us to enter the consumer finance market where we believe we can grow substantially, in Canada to begin with, and eventually in the U.S." said Shafran. EcoHome has experienced significant growth since its inception in 2010 and has carved out a niche in the home improvement finance market, primarily in Ontario, that provides superior returns on equity and continued growth prospects.

"For our shareholders, Blue Chip and EcoHome provide the strategic platform to accelerate the growth and diversification of Chesswood's revenues and cash flows," said Shafran, "and importantly, the transaction is expected to be high single-digit accretive to EPS in the first full year of operations." Chesswood has increased its dividend eight times since 2009 and the strong cash flows provided by the acquisition are expected to enhance the Company's ability to continue to grow dividends.

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