Celtic Capital was founded in 1982 by my father, Bron Hafner. I joined my dad in June of 1985, a year after graduating college. At that time, the Company was very small with total outstandings of $1,500,000. Our average loan was $75,000. The Company had been founded with minimal equity and subordinated debt held by various family and friends. My dad and I grew the business over the ensuing years but were always limited by our lack of capital. After 10 years with the Company, in 1995, my father elevated me to be his partner.
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 salespeople, re-tooled 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 with which we were constantly faced, my dad and I sold the business in 2005 to Discovery Bank, a small San Diego-based bank. The bank recapitalized Celtic Capital which immediately improved our income statement. My father retired and I stayed on and ran the Company along with our Executive Vice President, Alex Falo, who we hired in 1995.
We had a nice three-year run with Discovery Bank during which time we had record years of profitability. In late 2007, early 2008, the bank ran into some issues and decided to sell Celtic Capital to pull capital back into the bank. Alex and I were introduced to Pine Tree Equity, a private equity group based in Miami, Florida. We partnered with Pine Tree to buy the Company from Discovery Bank which, once again, made Celtic Capital a private company.
With the proper capital structure and room to grow, Pine Tree 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 Capital expanded geographically, hiring sales personnel across the country and tripling the business over the next three years. For the first time, in 2011, our lines of credit exceeded $100,000,000. 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 in early 2012 we were introduced to the senior management at Pacific Western Bank (PWB). PWB already owned two other asset based finance companies and as did Celtic Capital, they, too, focused on smaller borrowers so PWB’s understanding and knowledge of the business was very strong.
The sale to PWB was completed in April, 2012. The bank was very supportive from the start and Celtic Capital continued with our business model of providing up to $5,000,000 of asset based capital to small and mid-sized companies nationwide.
PWB was an outstanding bank for a historically independent finance company to be affiliated. The process of integrating our information technology systems, payroll, benefits, payables, etc. was quite easy and facilitated our ability to focus on growing the business and maintaining our credit standards. Our 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 Capital 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 and 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 three finance company subsidiaries of the bank designed a plan to consolidate operations and shift our joint market to pursue a larger transaction size to help facilitate continued growth of the bank’s asset based lending group. Part of that consolidation plan was spinning off Celtic Capital so that Alex and I could take it private and, again, be independent. We approached senior management of the bank and found them supportive. They offered us a senior line of credit to expedite the transition.
Alex and I pooled our capital and for a second time with Pine Tree Equity, closed a deal. The acquisition was seamless to our clients with no disruption to their businesses. Alex and I regained full control of our credit approval process, thereby streamlining deal approval. With Celtic Capital’s sales team reporting directly to me, I now review every deal before a proposal goes out thereby increasing our ability to close on what we propose and to close quickly.
In April 2022, Fourshore Partners, a family office, took over Pine Tree’s position as our equity partner. Pine Tree introduced us to Fourshore and the exchange was a lateral swap with no changes or disruption of any kind.
For those who own and manage independent finance or factoring companies and are contemplating when the right time is to sell, a piece of advice. Sell only when you have a compelling reason. Our 2005 sale was to re-capitalize the business, 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 bank’s cost of funds, and to realize on the investment made due to our successful track record. Our re-purchase was to get back to the basics of the business and regain our independence.
When looking at the various ownership structures we have had at Celtic Capital, 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 Capital until we are ready to retire which is still many years away.
Mark Hafner
President and CEO
Celtic Capital Corporation