Uncertainty.

As used, overused and even cliché the word has become this past year, the reality is that uncertainty continues to impact most of us, and continues to heavily influence discussions on merger and acquisition (M&A) activity in the equipment finance industry. Now, though, industry experts are starting to look ahead, seeing signs of an M&A uptick with a modicum of optimism. We spoke with four M&A industry executives for their perspectives.

Each expressed cautious optimism about M&A activity in the equipment finance industry. Jim Jackson, Co-CEO and Leader of the Merger & Acquisition Advisory Practice at The Alta Group, sums up the collective sentiment as he speaks about how tariffs, inflation, interest rates, and geopolitical conflicts continue to cast economic uncertainty: “These will all hopefully subside in the near term to provide for a more robust M&A environment next year.”

Widespread Impact of Tariffs

“We had a lot of optimism going into 2025 with the new administration coming in,” says Chris Hemler, Managing Director at Hovde Group. “The general market expectation was that it would be a business-friendly environment, so by extension, good for M&A activity.”  With the introduction of tariffs, and changing implementation dates and policies, he says, “the priorities have differed somewhat from what people expected.” As a result, M&A activity has been slower.

Jackson takes a long-term positive view of the impact the current administration’s policies on tax cuts and reduced regulation will have on M&A. But, for now, he says, these positive factors are outweighed by the ongoing uncertainty in the market associated with tariffs, interest rates, inflation concerns and a weakening labor market. 

“A rate reduction will embolden the M&A market, and drive down the cost of funds for players in the equipment finance space.” 

—Brent Ferrin, Houlihan Lokey

Hemler also sees some long-term positive impact of the administration’s economic actions, such as the tax and spending bill. But uncertainty with tariffs has been a problem. “In and of themselves, higher tariff rates haven’t been a major issue impacting M&A so far,” he says. “It’s mainly the uncertainty and volatility of changing tariff policies that make it difficult for businesses and boards to make long-term decisions.” That uncertainty also creates issues in business confidence.

“The threat of massive tariffs earlier in the year painted uncertainty around global trade and affected all types of equipment purchases,” adds Jim Chester, Managing Director of Investment Banking at Keefe, Bruyette & Woods. “That uncertainty has lessened a bit as some threats have been postponed and some countries have reached agreements,” he says.

Brent Ferrin, Managing Director at Houlihan Lokey, adds that people may have become desensitized to the tariff situation. “We’re getting past the scariest moments that led to peak tariff concerns, and moving toward more certainty – or at least a new normal.”

Yet tariffs remain a concern, with every expert keeping a close eye on their developments. Jackson offers a note of caution for equipment finance companies that originate a material number of transactions subject to price tariffs. “These companies could be subject to greater due diligence scrutiny during a sale to ensure that the portfolio value does not significantly exceed the value of the underlying assets.” He also could envision a situation where tariff policies create higher prices and inflation domestically – which could cause the Federal Reserve to actually increase interest rates, limiting the possibility of a strong M&A market.

Lower Rates, Renewed Interest

On top of tariff considerations are interest rates, which play a significant role in the level of M&A activity. “All else being equal,” explains Jackson, lower interest rates provide potential buyers with a lower investment hurdle rate. That allows them to bid a higher price for an acquisition and still achieve their required rate of return. In addition, a seller’s business is generally worth more if they hold a portfolio of fixed-rate assets that are supported by a lower cost of funds, resulting in higher margins and net income. The result: With lower rates, buyers can afford to pay more and sellers are in a better position to sell at a higher price.

“The bank universe is thawing, and is increasingly interested in acquiring growing, small- to medium-sized companies, looking to buy and build them up.” 

—Chris Hemler, Hovde Group

The market expectation is a reduction in interest rates, says Hemler, which “is good news for M&A activity.” In particular, he says, for equipment finance companies with fixed-rate assets and variable-rate liabilities, a lower variable rate on those liabilities will increase their net interest margin and make them more profitable.

That can help the industry in a few ways. “It may help bridge the valuation gap we’re seeing between what a seller wants to sell for and what a buyer wants to pay,” says Hemler. It will help boost cash flow and the confidence of business owners. And, he says, it will reduce buyers’ cost of capital, helping them fund acquisitions at higher multiples.

“A rate reduction will embolden the M&A market, and drive down the cost of funds for players in the equipment finance space,” says Ferrin. Buyers will be able to raise acquisition financing at cheaper rates, and the earnings of businesses in the industry will increase as their cost of funds goes down. “Absent some businesses that are set up with their assets and loans that are also variably priced, the vast majority of players will benefit from a declining interest-rate environment.”

Ferrin also predicts “more eyes” on the industry with a rate drop. In 2023, when rates spiked, it took equipment finance companies some time to strategically increase their pricing, he explains. At the same time, their cost of funds nearly tripled. Likewise, when rates go down, companies won’t immediately decrease pricing. The investor base, remembering and recognizing what can happen to businesses when rates do spike, will be paying more attention to opportunities in a lower-rate environment. “We’ll see renewed interest.”

Positive Signs

And, indeed, there are signs that M&A activity is picking up, particularly with banks. “So far, we’ve seen banks primarily doing deals with each other, but they’re more receptive to conversations with us regarding specialty finance assets,” says Ferrin. “I do think the industry will see more bank buyers in 2026.”

Hemler agrees, though notes that so far, banks have been mainly buying with stock, not cash, and at valuations below historical averages. “Still, when banks are active in the equipment finance market, it’s a good thing.”

“There’s no shortage of buyers who want to put their cash to work, and no shortage of sellers who want to monetize their investments.” 

—Jim Jackson, The Alta Group

Chester sees a positive sign with more stable interest rates. “I see real acceleration in M&A activity for the industry through 2026,” he states.

For now, even as signs point up, the industry is in a “wait-and-see” mode. Several high-quality equipment finance companies are prepared to sell, says Jackson, but the owners are waiting for market conditions to improve in an effort to increase the possibility they can extract a strong price from potential buyers. “There’s still enough noise, and there are still enough issues in tariffs and inflation, that everyone’s sitting back a little to see how these things will shake out,” he says.

2026 Buyers

Executives see several distinct types of buyers for industry firms in 2026.

• Banks: Bank activity and interest are increasing, say all the executives. “They’re back in growth mode, and believe equipment finance could be an opportunity to drive earnings,” says Chester. “The bank universe is thawing, and is increasingly interested in acquiring growing, small- to medium-sized companies, looking to buy and build them up,” adds Hemler.
  
  
• Private equity: Jackson sees private equity firms to likely be the most aggressive buyers in 2026. “There’s a great deal of dry powder among these investors,” he says. At the same time, he mentions private equity firms that invested in the industry several years ago and now are looking for an opportunistic chance to exit those investments. 

  
  Hemler and Ferrin see private equity buyers as a very price-sensitive group. “There’s a lot of capital in that space,” says Hemler, “but so far, they have mostly focused on start-ups where they can build it themselves for less.” He also notes the growth of partnerships where asset managers can get access to the assets that interest them without having to make a large acquisition in the space. “A lot of capital doesn’t necessarily translate to a lot of M&A activity.”

  Pure private equity sponsors may pursue de novo opportunities and seek management teams to back, agrees Ferrin, but are likely unable to pay the premiums it takes to win deals in the equipment finance sector. He, too, expects private equity to be predominantly focused on small-ticket platforms that can generate higher yields, and that are not as dependent on cost of funds as some of the mid- and large-ticket platforms that asset managers, credit funds and insurance companies have acquired.   

• Strategics (industry firms): The main driver of activity over the last few years has been with strategic buyers, says Hemler. He expects them to continue to be active acquirers next year. “They have grown substantially, and they are well-positioned to make acquisitions – especially those backed by deep-pocketed investors.” Chester and Jackson concur, expecting equipment finance firms to acquire complementary products or solutions, or enter into new markets.

“There’s no shortage of buyers who want to put their cash to work, and no shortage of sellers who want to monetize their investments,” concludes Jackson. “We just need the overall economy and market to play along.”

Challenges

While all the experts are looking for the market to loosen in 2026, a number of concerns still exist.

Jackson eyes a cycle he has seen play out before. “In general, portfolio quality in our industry has remained quite strong for the past several years, and demand for origination growth has resulted in compressed pricing margins and less rigorous credit standards in order to compete effectively in the market,” he states. “If the current economic uncertainty begins to impact portfolio payment performance, current pricing spreads may not be sufficient to cover the losses.”

“Equipment finance is a great asset class with great potential. Investors should be looking at this sector.” 

—Jim Chester, Keefe, Bruyette & Woods

Hemler points to investors starting to back start-ups rather than make acquisitions of existing companies, and to the challenge of size for bank acquirers. “Independent lessors have grown significantly over the last few years,” he says. However, banks continue to struggle with large cash acquisitions, making some businesses in the current market too big for most banks. “The asset managers – the ones with the desire and capital to do a sizable deal – find it difficult to pay attractive multiples right now with interest rates where they are.”

Chester acknowledges the challenges, but still sees quality near-term opportunity. “Equipment finance is a great asset class with great potential. Investors should be looking at this sector.”

Conclusion

The group agrees that there is more optimism in the equipment finance M&A sector than they’ve seen since 2022. “We’re starting to get past the uncertainty and see more activity,” says Ferrin. But a few more pieces need to come together. “Once we have greater clarity on the economic impact of tariffs, rates and inflation, along with the extension of the 2017 tax cuts and reduced regulations already in place, 2026 should provide a strong environment for M&A activity in our industry,” concludes Jackson. Then, say the execs, as uncertainty decreases, buyers, sellers, management and boards of directors can plan and move forward.

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