Celtic was founded in 1982 by my father, Bron Hafner. I joined my dad at Celtic in June of 1985, a year after graduating college. The company was very small, with total outstandings of $1,500,000 in 1985. Our average loan was $75,000. My dad and I grew the company over the ensuing years but were always limited by our lack of capital. The company had been founded with minimal equity and subordinated debt held by various family and friends. After 10 years with the company, my father elevated me to be his partner in 1995.
By the late nineties we had decided to shift our market from the under $1,000,000 deal size to our current market of $500,000 to $5,000,000. To do this, we began hiring sales people, retooled parts of our internal staff, updated our policies and procedures for a different level of borrower and implemented a more robust accounting and monitoring software system. We fully leveraged the business with the growth that ensued.
Frustrated by the capital constraints we were constantly faced with, my dad and I sold the business in 2005 to a small San Diego based bank by the name of Discovery Bank. The bank recapitalized Celtic which immediately improved our income statement. My father retired and I stayed on and ran the company with our executive vice president, Alex Falo, whom we had hired in 1995.
We had a nice three year run with Discovery, during which time we had record years of profitability. In late 2007, early 2008, the bank ran into some issues and decided to pull the capital within Celtic back into the bank by selling Celtic. Alex and I were introduced to Pine Tree Equity, a private equity group based in Miami, Florida, who we partnered with to take Celtic private again.
So, in December 2008, despite our concerns as lenders during the most challenging economic market I had seen, we bought the company back from Discovery with Pine Tree’s assistance. With the proper capital structure and room to grow, the private equity group challenged us to see where we could take the business. Banks were not lending at the time which caused record years of new business for independent asset-based lenders. Celtic expanded geographically, hiring sales personnel across the country and tripling the business over the next three years. Our lines of credit exceed $100,000,000 for the first time in 2011. Our expansion took us to Dallas, Houston, Minneapolis, Cincinnati and Pittsburgh which added to the markets we had been in for years, Southern California, Denver, Phoenix and Seattle.
With an extremely positive trend line in asset growth as well as profitability, we determined it would be an opportune time to either continue our expansion by adding an east coast office or testing the marketplace to sell the business. We opted for the latter and were introduced to the senior management at Pacific Western Bank in early 2012. PWB already owned two other asset-based finance companies focused on smaller borrowers like Celtic did, so their understanding and knowledge of the business was very strong.
We completed the sale to PWB in April 2012. The bank was very supportive from the start and helped make the transition smooth. Celtic continued its business model of providing asset-based capital to small and mid-sized companies nationwide up to $5,000,000.
PWB was an outstanding bank for a historically independent finance company to be owned by. Integrating our information technology systems, payroll, benefits, payables, etc. was made quite easy due to the level of expertise of the people on the banks side. Celtic was able to focus on growing our business and maintaining our credit standards. The business continued to flourish.
In April 2014, PWB closed on a significant merger that doubled its size. Although an outstanding combination for the bank, it left Celtic feeling rather insignificant in terms of our contribution of assets to a bank that now exceeded $15 billion. While the bank was an outstanding partner, we longed for the days when we were independent where we could dedicate our energy and time to the small borrower, our bread and butter, rather than focus on goals aligned with being part of a larger public company. The independence was just in our blood and the environment in which we were the happiest.
The three finance company subsidiaries of the bank determined the best approach would be to consolidate operations and shift our joint market to pursue a bit larger transaction size in order to help facilitate continued growth of the bank’s asset based lending group. Part of the consolidation plan was spinning Celtic off so that Alex and I could take it private and realize our dream of being independent again. We approached senior management of the bank and found them supportive of the plan. They even offered to provide our senior line of credit to facilitate the transaction.
Alex and I pooled our capital with that of Pine Tree Equity again and closed the deal July 11, 2014. Being private again will allow us to continue to focus our attention on assisting non-bankable borrowers with lines of credit up to $5,000,000. Alex and I regained full control of our credit approval process, thereby streamlining deal approval. Celtic’s sales team reports directly to me and I review every deal before a proposal goes out, thereby increasing our ability to close on what we propose and to close quickly.
The acquisition was seamless to our clients as well, with no disruption to their business due to the ownership change of their lender.
For those who own and manage independent finance or factoring companies and are contemplating when is the right time to sell, a piece of advice. Sell only when you have a compelling reason. Our 2005 sale was to recapitalize the business to reduce the cost of capital and to cash out our family and friend subordinated debt holders. The 2008 re-purchase was to exit Discovery Bank, who was having issues internally, and to provide more capital to fuel the growth we knew we could realize.
The sale to PWB in 2012 was to take the next step as an organization, reduce our cost of funds by replacing our senior lender with the banks cost of funds, and to realize on the investment made due to the track record we had developed. This current re-purchase was to get back to the basics of the business and regain our independence. Without a compelling reason, there is no reason to sell.
When looking at the various ownership structures we have had at Celtic over the past 10 years, the one we have now is what is best for us. It gives us the flexibility to react quickly in the market, the strength of a strong equity backer coupled with management’s equity stake, and the ability to stay independent indefinitely. The plan is for Alex and me to continue to run Celtic, with our new ownership structure, until we are ready to retire, which being in our early fifties, is many years away.
Closing in on 30 years with Celtic, I have been very fortunate and being independent again has given me another shot at the American dream.
President and CEO
Celtic Capital Corporation