Eclipx may be a takeover target again, after selling Right2Drive

The fleet leasing industry may be headed for consolidation.

Now that Australian fleet leasing company Eclipx has sold its Right2Drive business, the question is whether Eclipx itself will start fielding takeover approaches.

Market analysts say a divestment of Right2Drive to Australia-based Growth Factor Group for $26.5m paves the way for consolidation in the industry.

It is considered that Eclipx achieved a good price for the division, which had a $28m book value. Eclipx’s stock rallied 6 per cent on the news, although some suspect the gains are also due to the anticipation of further corporate activity.

The poor performance of the accident loan car provider Right2Drive was always a deterrent for a party looking to buy Eclipx. It put off McMillan Shakespeare, which was poised to buy Eclipx after making a bid in 2018 which at the time was worth around $912m.

Right2Drive was purchased four years ago by Eclipx for $67m.

Eclipx’s market value is now about $415m.

McMillan Shakespeare had at the time put forward an offer of 0.1414 McMillan Shakespeare shares and 46c cash for each Eclipx share held, but the value later dived as Eclipx updated the market with bad news.

After chief executive Doc Klotz departed Eclipx, its former UBS investment banking adviser, Julian Russell, was hired as its new head in May. Some took that at the time as a signal the company was in play.

Also deterring buyers was Eclipx’s GraysOnline business, which was sold last year to Quadrant Private Equity for $60m.

The Right2Drive division has drawn interest from numerous parties, including Kohlberg Kravis Roberts, Affinity Equity Partners, Macquarie Group and insurers such as Insurance Australia Group, Allianz and Suncorp.

However in recent times it has been strategic groups that Eclipx has held talks with rather than private equity firms, which have been unprepared to pay the asking price.

Earlier this year, Eclipx was close to reaching a deal to sell Right2Drive to an offshore credit fund for a price slightly less than what Growth Factor Group has offered.

However, the private equity firm withdrew from a transaction at the onset of the COVID-19 pandemic.

A second sales process was launched mid-March through PwC.

Despite the current economic turmoil linked to the global pandemic, the Australian fleet leasing industry is apparently reasonably stable and the major participants have conservative balance sheets.

The upside for Eclipx is that most of its clients are Australian-listed companies and it has limited exposure to the tourism industry.

Some point to Smart Group and McMillan Shakespeare, which has a number of government service clients, as the most likely buyers of Eclipx, although SG Fleet also made a bid for the group two years ago.

Market analysts say that synergies that exist in the industry are significant and consolidation makes increasing sense while the economy is facing tough times.

Shares in Eclipx were trading at about $1.38 on Monday afternoon. McMillan Shakespeare was at $9.21, with a market value of about $708m.