CSI Leasing: Need To Sell?

Below is an example of a newish feature in Buyouts magazine, Need to Sell?, which is basically a mini-profile of a company that, judging by how long its been in its sponsor’s portfolio, should be ripe for a sale and hence a potential deal opportunity. This an updated version of the Jan. 16 edition’s feature.–BV

Feb. 4 marked a special anniversary for Charlesbank Capital Partners, the Boston-based buyout firm with more than $2 billion in assets. It will mark the 10-year anniversary of the firm’s buyout of CSI Leasing, an information technology leasing company that Charlesbank Capital continues to hold.

Charlesbank Capital paid an undisclosed amount for the St. Louis, Mo.-based company. The investment came out of the firm’s fifth fund, a $590 million pool of capital raised back in 2000, according to Capital IQ. In 2001, the company reported revenue of $577 million, up from $521 million in 2000, according to a 2002 Buyouts article on Charlesbank Capital’s acquisition of the company.

On its Web site, Charlesbank Capital characterizes the company as “one of the largest independent IT leasing companies in the world, generating annual revenues of nearly $270 million,” which suggests that the company’s revenues have taken a dive, although that could reflect asset sales. The company has more than 30 sales offices in the U.S., Canada, Mexico, Brazil, Costa Rica, Germany and Great Britain, the site says.

Under Charlesbank Capital’s ownership, the company has completed at least four acquisitions, two of which came in 2011, according to Capital IQ. In September, it bought Fortis Lease Czech s.r.o., a Prague-based company. And in February of last year, CSI Leasing bought Academic Capital Group Inc., a Chicago-based company, now called CSI Government and Education Finance, that provides public finance and lease origination services for equipment manufacturers and distributors and other customers. The other two acquisitions came in 2010 and 2007.

The company also recently expanded into Italy, establishing an entity called CSI Lifecycle Services Italia Srl, according to a Jan. 3 report in the St. Louis Business Journal Online. A Chilean division, meanwhile, expected sales to spike to $10 million in 2011 from $1 million in 2010, according to a March 24 report in Business News Americas. According to that article, CSI Leasing maintains contracts with manufacturers such as Cisco, Dell, and Lexmark.

It’s unclear why Charlesbank Capital continues to hold the company. The Buyouts article in 2002 offers one possible challenge for the investment early on: While capital from Charlesbank Capital would be used to expand CSI Leasing’s sales efforts, “revenue figures in 2002 may be hindered by a slumping economy that has seen companies extend their hold times on IT equipment,” the article said.

Executives at the firm declined to comment.

Charlesbank Capital is investing from its seventh fund, a $1.5 billion vehicle raised in 2009.

Bernard Vaughan is a senior editor at Buyouts Magazine. Follow his tweets @BVaughanReuters. Follow Buyouts tweets @Buyouts.

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1 Comment

  • Hi Bernard: I’m the President & COO of CSI Leasing and I’d like to address several of the statements in your article. To clarify, Charlesbank has been a minority investor in CSI since 2002 when it acquired approximately 25% of CSI’s shares. At no time did Charlesbank engage in a “buyout” of CSI, and CSI has never been “under Charlesbank Capital’s ownership.” Management and other employee stockholders continue to own the majority of shares. At the present time, Charlesbank’s interest in CSI consists of preferred stock that has more than doubled in value; plus Charlesbank has received many millions of dollars in dividends over the last ten years (over $6 million in 2011 alone). In short, CSI has been a great investment for Charlesbank, and CSI’s board of directors has enjoyed the benefit of sound advice from Charlesbank.

    I appreciate that it might have been difficult for you to assess the financial performance of CSI since 2002 because CSI is a private company and we don’t release our financial statements to the general public. I can assure you, though, that CSI has performed extremely well over the last ten years, a period which included the “slumping economy” of 2002 following the trauma of 9/11 and then the recession prompted by the banking crisis of 2008. You cite some published figures regarding revenues to suggest that the company’s “revenues have taken a dive.” Those figures, however, are misleading because of a change in the method of accounting for lease revenues. CSI switched from using the “sales type method” of reporting certain capital leases to using the “direct financing method” of accounting in accordance with SFAS No. 13. The sales-type method reports revenue from a lease up-front (the present value of total expected lease payments) in the month of booking, whereas the direct financing method uses a different definition of revenue and amortizes it over the term of the lease. Restated results for FY 2002 using the new accounting method put revenues at $199 million, versus $502 million if sales type lease accounting had been used. Yes, new equipment purchases and revenues were down in 2002 under either method, but profits were up 20% due to strong residual value realizations from the existing portfolio. For FY 2011, revenues were a record $351 million. In the nine years since FY’02, assets have grown from $614 million to about $1.4 billion, and FY’11 set a record for lease originations (the cost of new equipment purchased for lease transactions) at over $780 million, compared to under $300 million of purchases in FY’02. And perhaps most important, stockholders’ equity has grown from about $86 million to $171 million. If you have further questions, please feel free to contact me. Thanks for your interest in CSI.

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