Element Financial Splits Into Two Separate Listed Companies

Element Financial Corp. said it will split into two publicly traded firms in a bid to unlock shareholder value. The Toronto-based lender said it will create a fleet management company with C$19.5 billion in assets under management and a C$7 billion North American commercial finance company. The former will be led by Bradley Nullmeyer, Element’s President, and the latter will be led by Steve Hudson, the Chief Executive Officer, according to a statement on February 23. 

The fleet management business, which has about 77 percent of its portfolio based in the U.S., will focus on driving increased services, higher fee revenue, and integration savings, the company said. It will contain Element’s U.S., Canadian, Australian, New Zealand, and Mexican fleet business as well as retaining some of the rail assets.

The commercial finance unit will continue its transition into an asset manager with the participation of its institutional investors. It will hold the U.S. and Canadian commercial and vendor businesses along with the rail and aviation asset-management business.

Element decided to expand its commercial finance business rather than sell it during a corporate review at the insistence of investors, Hudson said.

The decision to split the company’s operations came after a strategic review launched last October and is expected to be completed by end of the third quarter, subject to standard approvals, the company said.

Element has rapidly grown in the past year after the $6.9 billion acquisition of GE Capital’s fleet management business last June. That followed the $1.4 billion acquisition of the fleet management services business, PHH Arval, in 2014.

Element’s rationale for the split is that the current business structure combines operations that have different operating profiles, growth trajectories, leverage and capital requirements. As separate companies, each of these businesses will be able to devote 100 percent of its resources on developing its core business, Element said.

The company said it will discontinue its aviation finance business and reposition it with a sole focus on aviation funds.