How to value a leasing broker
I must get asked this question every month by other owners of leasing companies. So lets take a look at how to value a leasing broker
Own book lease portfolio
An own book lease portfolio is relatively easy to value and if you are sophisticated enough to have an own book position, you don’t need me to tell you how much its worth.
Who is the buyer?
A lessor may well be looking at your lease origination, another broker would be looking at potential end of term income or the customer and supplier base. Sadly, lessors are often only looking to buy bigger brokers, hence for the smaller broker, the options for sale will be more limited. Interestingly, over the last few years Kennett and Henry Howard have been sold to “Private Equity” companies looking to move into the UK leasing market.
Profitability and balance sheet value
We hear all the time “the company was sold for four-times P/E” for example. Buyers and sellers will talk about the “pre-tax or post tax P/E” and this method can be used as a basis for valuation. However, there are often more important factors that we discuss further on.
With regards to profits, a buyer would add back in non-reoccurring costs such as an owner’s salary, personal expenses and dividends to give a true reflection of profits.
Often when you sell a company, the cash is taken out and value given to the balance sheet, less any goodwill. When we have sold leasing companies in the past, the other side of this is they have to be debt free, hence all loans fully repaid.
Regardless, the bigger the balance sheet and the more profitable the company is, the more it will be worth.
Lease origination
A small broker with great lease origination may be worth much more than a larger broker with a smaller portfolio. It all depends on what the buyer is after. What we have witnessed over the years is how more leasing companies are placing a much higher value on origination.
Lease customer and supplier base
For me, this is where the real value of a lease broker is. How can we get more from the goodwill already in the lease business?
Uniqueness
In the UK, there are only a few brokers who specialise in office furniture, agriculture, dentistry leasing or professions funding. Your target market will either be your biggest asset or a major weakness.
Lease types
I was once asked to value a one-man leasing company with a few hundred lessees that were all signed up on lease purchase documents. “Well Jeremy, what is my company worth?” was the question. I was embarrassed to answer as I did not wish to offend the person by saying “nothing.”
Sadly, without his continued employment and any additional income from end of term income, we were basically being offered just a list of names. We turned this deal down.
The Unknown
- Your vehicle leasing company with a big customer base may be worth a lot of money to an insurance company.
- Your location in the south may be of interest to a broker in the north looking to expand geographically.
- You may be bought for your time trading, your valid FCA licence, your trading agreements with Lex or Arval.
- Your online route to market may assist a leasing company with more traditional marketing methods.
- You might be the correct size and location for a private equity house looking to move into the leasing sector.
- A director of a leasing company may be fired if they do not complete on a purchase of a company like yours before year-end.
Summary
The most important part of selling a leasing broker is understanding the truth as to why the acquirer is looking to buy your company in the first place. Once you know this, it is a lot easier for you to really value your leasing company.
Acquiring leasing companies
We have bought and sold a number of leasing companies, lease portfolios and customer bases. If you are looking to sell your leasing company, we may be able to help.
Please call me, Jeremy Hall. 01494 611 456
