NewStar Financial sold its equipment finance business and related assets to Boston-based Radius Bank, a federal savings association, for approximately $140 million in cash.

NewStar launched the business in 2011 and expanded it significantly over the last five years under the leadership of industry veteran Steve O’Leary.

The transaction was structured as a sale of the business platform and related assets and generated net proceeds to NewStar of approximately $105 million, net of debt repayment, transaction fees and other retained liabilities. The purchase price reflected a premium of approximately 5% of NewStar’s net investment in receivables, totaling approximately $133 million, and was approximately 1.2x book value, based on allocated equity capital of 30% of net receivables. NewStar expects to recognize a gain on the sale in Q4/16.

The sale of the equipment finance platform demonstrates a continuation of the company’s transformation from a bank-styled, diversified commercial finance company into a more specialized middle market direct lender. It also reflects a strategic decision to exit businesses with economic models increasingly challenged by competition from banks and other lenders with access to lower cost funding.

NewStar’s CEO Tim Conway said: “I believe this transaction is a positive for all parties involved. The leasing platform is a great fit with Radius’ growth strategy, and being part of a bank should provide a significant competitive advantage that will allow the team and the business to achieve their true potential. For NewStar, the transaction generates an attractive financial return and further demonstrates the intrinsic value of our direct lending platforms that we believe is not fully recognized in our current share price. The successful sales of both our equipment finance and asset-based lending businesses have added significantly to our liquidity position and enabled us to streamline the company’s operations, which is expected to reduce our cost base by more than 30% from our first quarter run-rate and improve returns.”

Houlihan Lokey served as financial advisor, and Locke Lord served as legal counsel to NewStar in connection with the transaction.

Boston-based NewStar Financial is an internally-managed, commercial finance company with $6.6 billion of assets managed across two complementary business lines — middle market direct lending and asset management.

With assets of approximately $850 million as of September 30, 2016, Radius Bank is a community bank offering a full complement of personal and business products and services.