In the second auto finance acquisition in two weeks, First Investors Financial Services Group Inc. has agreed to sell itself to private equity firm Aquiline Capital Partners LLC for $100 million in cash.
Aquiline Capital will pay $13.87 per First Investors share, a 39% premium to the stock’s $10 closing price on Sept. 25. The stock has climbed 32% in the past year.
Founded in 1988, Houston-based First Investors offers indirect and direct lending, as well as portfolio acquisitions and third-party servicing. The indirect lending business serves auto dealers in 37 states, offering financing programs to consumers with credit scores of 500 to 650, including those who have gone through a bankruptcy process.
“The acquisition by Aquiline is the result of a thorough and competitive process focused on maximizing value for our stockholders,” said Tommy A. Moore Jr., First Investors president and CEO, in a prepared statement. “Our board unanimously supports this transaction and believes that the acquisition will continue to expand the company’s leadership position in the market it serves. As a management team, we are very excited to be partnering with Aquiline, a firm with an outstanding reputation, valuable industry expertise and capital resources that will enhance our ability to grow our company.”
Aquiline Capital is a private equity and venture capital firm focused on the financial services industry. It was founded in 2005 and typically invests between $100 million and $400 million per transaction, according to a Bloomberg Businessweek profile.
To sweeten the deal, there are credit unions that offer short term balloon financing. There are many benefits to balloon financing for both dealers and consumers. For example, money down or trade equity reduces a 24 month term balloon payment by almost $50./mo. There are roughly 250 credit unions around the country offering balloon programs. It makes sense for a credit union to offer a balloon instead of a lease as the non profit status of a CU makes any depreciation credits useless. Balloons work much better in states where the sales tax is paid up front, and less well in states like CA where the tax is on the lease payment. At the end of the balloon term, the consumer can buy out the balloon with cash or finance without having to pay sales tax again. OR, they can sell the vehicle or trade it in. They can also turn the vehicle back in and walk away or make another purchase.
Credit Unions seem to have somewhat different buying habits than conventional banks, perhaps given the fact that they are not dependent on asset backed securitization.
It would be nice to see dealers get back to somewhat recession proofing their business through shorter term residual based financing rather than using extended term to lower payments for consumers.
Residual based financing through select credit unions is also available on late model pre-owned, a real sweet spot of opportunity for savvy dealers.