ENGS Commercial Finance (ENGS) traces its roots back to 1952, and is still one of the oldest lenders to the truck and trailer industry. In February 2015, the company announced that Aquiline Capital Partners LLC became a major investor in ENGS Commercial Finance to further capitalize on its strong position in the transportation space, as well as provide growth capital to strategically expand into adjacent commercial equipment finance markets. Since this investment, ENGS has been working hard to achieve its goal to become a leading diversified commercial finance company – having announced expansions into the industrial, construction, factoring and insurance sectors. The company has also successfully completed two rounds of securitizations further positioning the company for growth.
Equipment Finance Advisor met with Craig Weinewuth, the company’s CEO and President and James Freund, EVP and Chief Marketing Officer to learn more about the management team’s growth initiatives and view of the equipment lending environment from the perspective of one of industry’s most seasoned independent commercial finance companies.
Equipment Finance Advisor: ENGS’ roots are deep in the trucking finance industry – dating back to 1952. Since August 2016, ENGS has announced a number of company expansion initiatives, including the company’s purchase of Connext Financial, and industrial equipment lender, the launch of an insurance agency, expansion into the invoice factoring industry, and most recently the launch of a new construction division. Please explain the strategic vision behind this expansion of the company’s product offerings and entry into these new equipment sectors.
Craig Weinewuth: Developing a broad based commercial finance company was part of our initial investment thesis when we acquired ENGS in 2012. This investment approach stemmed from a significant analysis we conducted after the credit crisis as well as leveraging our prior experiences operating larger diversified commercial finance businesses. We believe you create the greatest institutional value for your business and returns for your investors by developing a broad-based commercial finance business. Not only does this allow you to expand your growth trajectory into other industry verticals and product offerings, but it also allows you to strengthen your underlying portfolio performance as you diversify your receivables beyond the cycles of any one industry vertical.
As we analyzed the marketplace, we identified fairly significant dislocation among a number of industry verticals, but ultimately identified transportation as the initial entry point to develop a commercial finance foundation around. Our strategy was very straight forward: we wanted to build a recognized vendor-centric, specialized commercial finance company that managed transactions through a centralized processing function. We found the ENGS organization was a great platform to launch this growth strategy. Part of what we liked about the ENGS business was how well steeped it was in the transportation equipment financing industry, albeit on a regional basis – primarily in California, Arizona and Nevada. This provided us with an opportunity to take this great regional lender and grow the business into a nationally recognized lender. Our initial focus was to nationalize the footprint of the business by hiring great local field representatives and institutionalize the company with Fortune 100 disciplines we used while operating larger more advanced companies such as American Express and Transamerica. We did this quite successfully – taking a business that had $100 million in assets at the time we purchased ENGS in 2012 and growing it to $600 million in assets in 2016, while increasing topline originations from $30 million annually to in excess of $300 million in 2016.
In or around late 2015 to early 2016, we felt the foundation was firmly in place looked to diversify into selected new industry verticals. We went through a process of assessing how to best diversity – either through acquisitions or de novo efforts. Initially, the idea was to expand into what we refer to as adjacent markets that would fit within concentric circles around the transportation industry. So, we focused on hard assets that are distributed via similar distribution channels, namely through manufacturers, dealers and distributors – allowing our vendor-centric strategy to remain consistent. Then we identified a number of markets that met our investment criteria – industrial, construction, factoring, material handling and others. We identified an acquisition opportunity in the industrial space with Connext Financial, a leading industrial equipment lender, as our first diversification move. We closed on Connext in 2016, and after a smooth integration, we began to expand the platform into additional verticals. We looked at the construction sector, but did not like available platforms, so we commenced a de novo construction business unit, and we did the same thing with our new factoring business, Engs Commercial Capital.
We think overtime each one of these new industry verticals will become of equal size to our Transportation vertical.
James Freund: As Craig outlined, we have diversified into other markets outside of transportation with our business now comprised of five revenue generating channels versus one in August 2016. But we still remain a specialized lender in each of our markets as outlined in the initial investment thesis. We don’t just dabble into new markets; rather we enter them with the intent to become a relevant player in these markets. From a personnel standpoint, we believe in specialization. Our sales and credit teams are specialized to their segments. Our transportation sales team is not calling on construction dealers, for instance. We believe that to provide our dealers with the highest level of service, we need to understand the dealer’s equipment, the dealer’s business model and sales channel. They are different in each of these verticals. Yes we are diversified, but we remain specialized in each individual market we serve.
Equipment Finance Advisor: As you mentioned, in October 2016, ENGS announced the acquisition of Connext Financial – expanding ENGS’ offerings nationally. Please explain what made this particular acquisition so attractive.
Weinewuth: We continue to be inquisitive and explore additional platforms that are a fit for us, but the universe of viable candidates is smaller today. Connext was attractive to us because the industrial market has become somewhat fragmented with a number of large banking institutions operating as indirect lenders to the industrial space. There is a void in this market we can effectively fill.
Freund: First and foremost, Connext has a very strong management team that has been serving the industrial space for their entire professional careers, with long track records of success. Secondly, the tenured sales team that we acquired began originating business for us day-one. These people had been affiliated with Connext for ten years or so, and each possessed long track records of sales success. Lastly, Connext brought with it some very strong vendor relationships. Highly respected vendors had been doing business with Connext for the better part of ten years. We saw the opportunity to buy a platform with a great track record of success and give it more tools and resources to grow.
Equipment Finance Advisor: What investments in ENGS’ technology platform would you say have generated the most significant positive impact on your business from an ROI perspective?
Freund: Our back-end system allows us to decision and process a high level of application flow on a day-to-day basis. We are now able to process these requests and decision them in a matter of minutes – something we could not do a year ago. Today we can process over 100 applications per day.
Weinewuth: Salesforce has been very impressive for us – well beyond the CRM application. Salesforce has a number of bolt-on applications that allow us to customize our business fairly inexpensively with a number of customer facing applications that I believe are easier to integrate into the organization and customize than some of our legacy platforms. This has created much greater efficiency. These bolt-on apps from Salesforce are truly changing how quickly we can implement efficiency improvements in our company.
Equipment Finance Advisor: What is your outlook for each of the three major sectors covered by ENGS – transportation, industrial equipment and construction?
Weinewuth: We generated in excess of $300 million in new business volume just in the transportation vertical in 2016. We don’t anticipate this volume to go down with our diversification; rather we think it will continue to grow. However, it will become a smaller portion of our overall receivables as we diversify into these additional industry verticals. Ultimately, we believe all three verticals will become equal contributors to the organization. Over time, we believe each vertical will originate $300 million in business annually within a 2-3 year timeframe.
Freund: From the macro level, the timing of entering the industrial and construction sectors is very much in our favor. There is definitely a tailwind favoring growth for both the industrial and construction industries over the next few years, and as the broader economy continues to improve, we will be well positioned to capitalize on that growth.
Equipment Finance Advisor: As a leading independent equipment finance company with over 60 years of experience, what do you believe will ultimately determine the success of failure of lenders in the future?
Weinewuth: We believe success is dependent upon being relevant. We want to be a key lender to specific industry verticals – not just another commercial finance company. When someone thinks of lending in the industrial, trucking and construction sectors, we want our name to be one of the names mentioned as a strong financing source.
Freund: All major lenders go into dealers and vendors looking for their piece of the pie. Our mission is to provide greater value to our dealers by providing more finance solutions so they do not have to rely on so many different lenders to fill their customers’ needs. We have the expertise to get deals done quickly and the ability to provide a one-stop-shop of commercial finance solutions beyond equipment lending for our vendors. Ultimately, we can and will provide total financing solutions for our customers.