During the fourth quarter, Hitachi Capital America took several steps to expand its product offerings to clients in the U.S. and beyond. In October the company established Hitachi Capital Canada to target the truck transportation market in Canada. A month later, it announced it would acquire Michigan-based Hennessey Capital LLC, an asset-based lending and factoring firm providing working capital financing to business service, manufacturing and distribution companies. As the new year rolled in, Hitachi announced that Hennessey Capital would offer equipment financing to complement its traditional revolving lines of credit.
Hitachi Capital America (HCA) provides financing to Hitachi group companies and the commercial business sector in the U.S. Since 1990, the company has offered a variety of asset-based financing solutions with a business focus on truck finance, vendor finance, lease discounting and software financing. Headquartered in Norwalk, CT, the company is wholly owned by Tokyo-based Hitachi Capital Corporation, a subsidiary of Hitachi Ltd.
We sat down with William H. Besgen, president and COO of Hitachi Capital America; Thomas Cross, general manager of Hitachi Capital’s Trade Finance Division and Michael Semanco, president and COO of the Hennessey Capital Division to ask about these developments and what they indicate for the future of Hitachi Capital.
Hennessey Capital Comes Aboard
After deciding to move into the trade finance business, Hitachi Capital’s first step was to hire Cross, an executive with extensive background in trade finance and factoring. Among his many qualifications, Cross had been founder and president of Crestmark Bank, a cash-less commercial bank focused on factoring and asset-based lending. When opportunity knocked at Hitachi Capital at the end of 2010, Cross joined the company. As general manager of HCA’s Trade Finance Division, he was integral in the acquisition of Hennessey.
“Hitachi Capital had done a couple of large transactions and outsourced the servicing to a third party,” relates Cross. “To bring our service levels up to where we wanted them to be, we thought it best to bring the servicing in house. Our own back office would also allow us to give high level, cost-effective service to the smaller companies Hitachi serves.” Rather than build its back office capability from the ground up, Hitachi Capital looked to acquire it. Cross shared a long history with Hennessey Capital and admired the people there. Culturally, he thought it was a good fit.
“Hennessey had been around for a decade and had excellent portfolio performance and a skillset we thought would make an excellent platform on which to grow our business,” notes Besgen. “We had them provide the back office support for a few very large transactions and saw firsthand how well they worked. We quickly realized there might be opportunities in expanding that relationship. One thing led to another, and we acquired them.”
“More than just a portfolio acquisition, the decision to purchase Hennessey was strategic in nature,” says Semanco. “Hennessey had the back office experience as well as a portfolio split between asset-based lines of credit secured by receivables and inventory and factoring of receivables for small growing companies. We had the knowledge to help HCA grow as a new entity in the asset-based lending space.”
Because Hitachi Capital has a sister company in the UK that had already acquired a factoring company, it didn’t require a lot of explanation to get the parent company on board. “The transition has gone smoothly,” declares Semanco. “Our systems and philosophies were nearly aligned, so the transition from Hennessey as a standalone to Hennessey as a division of Hitachi went well.”
The partnership with Hitachi allowed Hennessey the chance to get into the equipment space and round out its ABL product offering. “We see equipment finance as a complementary product that we had not been able to accomplish on our own,” adds Semanco. “There is synergy created by joining the capabilities of both companies. We gained the ability to leverage Hitachi resources on the capital side, expand our product offerings by adding equipment finance for new and existing clients, and help with the servicing and provision of working capital finance to some of Hitachi’s customers.”
“Though the establishment of Hitachi Capital Canada and the acquisition of Hennessey Capital occurred within the same timeframe, the two moves were not really connected,” explains Besgen. “Hitachi Capital Canada came about because we’d been doing truck financing for about ten years in the U.S. where we have manufacturing relationships with companies such as Isuzu and Mitsubishi. Those manufacturers encouraged us to leverage our relationships in the States to accelerate our growth and recognition as a financing source in Canada. When we looked at it, we found that moving to Canada made sense.”
As part of the process Hitachi Capital teamed up with CLE, a private company based in Quebec and Ontario, to provide back office support. With the backing of its partner manufacturers, HCA now works with Isuzu and Mitsubishi dealers across Canada to provide financing for their business customers. The new division operates as a Canadian company, funding in Canadian dollars, with offices just outside Toronto.
Hitachi Capital continues to explore ways to work together to use the asset-based lending and factoring models within the truck industry. “Because a lot of these companies are small businesses that use trucks, there are excellent opportunities to cross-sell products,” says Besgen. “We primarily do term financing on medium and light duty trucks for these companies, but they obviously have receivables that could be financed to provide additional capital. Though we are not yet doing asset-based lending or factoring in Canada, we are looking for opportunities where it could be applicable. If we can work cross-sell opportunities in the States, I don’t see why we can’t expand that to Canada.”
Having access to greater resources will help Hennessey’s business grow. “A few years ago when the banks were tightening credit, Hennessey reached out to factoring companies with lines of credit to help them grow business,” recalls Semanco. “We started financing some factoring companies through traditional ABL loans and then rolled it out on a bigger scale. We were getting requests for $5 million to $10 million in that space but couldn’t fulfill them because of our size. Hennessey’s alliance with Hitachi gives us the resources and capital structure to pursue opportunities in diverse industries that we couldn’t necessarily get to before.”
“The banks are less interested in looking at small and mid-sized companies that need capital,” comments Besgen. “Hennessey and Hitachi understand that market. The asset-based lending model fills a gap for these companies, especially in the transportation and manufacturing sectors that we understand better today.”
“Most of the focus on the growth side will relate to areas where we have unique strength because of Hitachi,” states Cross. “For example, Hitachi is one of the largest logistics companies in the world. In leveraging that business unit, we can create and offer a unique product. Hitachi is also strong in the consulting business, so tying certain consulting initiatives with various forms of financing may make sense for us. Rather than pursue specific market segments, we look at where can we strategically fit with other parts of Hitachi to bring singular value to the marketplace.”
“Hitachi is a large, multinational industrial company that gives us capabilities our competitors do not have,” proclaims Besgen. “For instance, a deep understanding of a particular industry allows you to lend in different ways that are particular to that industry. If someone sells to customers in Europe, Asia or Africa, we are comfortable with that. It is our relationship with the other Hitachi companies, including our other capital arms, that adds value to our marketplace. “
“Another advantage for us is in the asset classes and products that are still evolving,” asserts Cross. “There are efficiencies and leveraging technologies coming into the marketplace. Hitachi has the resources to invest in that and be on the forefront. By combining with our Hitachi sister companies, we can bring truly unique solutions to the market.”
Working to Support Customers
“We stick to the model of doing what we know and what we do best,” cites Besgen. “Our customers are concerned about stability and continued funding capability. They appreciate that we are not a regulated institution and have greater flexibility to meet their needs, when and how they arise.”
“It’s hard to say what’s ahead for us in the next three to five years,” ponders Cross. “With the acquisition of Hennessey and the establishment of Hitachi Capital Canada, we have what we need to go after new opportunities. New growth will allow us to increase our product offerings, expand our client base and take advantage of efficiencies. The fun part of the alliance is the entrepreneurial side of Hitachi. We look at things opportunistically. Helping our customers be more successful and providing a product that will help them grow is our focus.”
“Hitachi Ltd. has been in business 100 years and is known for providing high quality products and good service,” concludes Besgen. “Whether it is televisions, construction equipment or elevators, Hitachi products are well-made and well-serviced. Hitachi is a well-run company and that comes through all aspects of the organization. Our customers appreciate that service, and we do our best to live up to those high levels.”
Lisa A. Miller is a freelance writer and contributor to ABF Journal.