M&A catches up with Jonathan Jenkins, CEO of GE’s Business Finance unit, one of the UK’s biggest asset-based lenders, and keenest business supporter.

General Electric is one of the world’s largest and most innovative ventures, focused on everything from jet engines to water processing, medical imaging to power generation, and infrastructure to NBC Universal.

In order to leverage this industrial and sector know-how in the provision of innovative funding solutions, GE also operates a substantial business finance division – GE Commercial Finance (GECF) – which, according to those who know, is one of the growth engines of the conglomerate and one that plies its trade in no less than 35 countries.

In the UK, the SME and mid-market activities of GECF are undertaken by the Business Finance arm, headed up by the sprightly John Jenkins. Formerly of Lloyds TSB, Jenkins is an accountant by training and a specialist commercial lender by trade. He joined GE in 2005 after 16 years at Lloyds, where he worked in specialist commercial lending.

“One of the great things I’ve found coming into GE is the advantages of being an industrial rather than a bank,” says Jenkins. “For example, one of the sectors our industrial businesses supply is the automotive sector. The insight gained operating in this sector underpins our financing of transactions and enables us to better advise clients in that space by taking a unique knowledge-based approach to the market they operate in. Their market is our market.”

Judging by the Business Finance unit’s transactional work in the last year alone, there is sound evidence that its sector experience is being applied successfully at the deal-making level.

GE recharges Yuasa’s batteries

In November last year, the Business Finance arm provided Yuasa Battery Europe with a £18.5 million refinancing package, resulting in the release of working capital. It followed a multi-million pound investment from Japanese parent GS Yuasa Corporation aimed at facilitating the company’s international growth strategy. The Wales-headquartered battery designer and manufacturer is now the world number two in its market.

“Yuasa faced the threat posed by lower manufacturing costs and imports from overseas. In order to address this, the business rationalised its operations by closing of a number of factories and changing the working practices of its workforce. Building from its current stable customer base, and with a newer management team in place, Yuasa wanted a more flexible financier – one they felt they could work closely and in partnership with to move themselves forward.”

Substantial and flexible finance

According to Jenkins, it is not unusual for an existing financier relationship to become strained through a turnaround period, prompting some companies to seek out a new partner to help them in their new growth phase.

“Essentially, we are usually able to provide our client with a more substantial and flexible package than their incumbent provider,” explains Jenkins. “In the case of Yuasa, the financial restructuring we put in place allowed the business to consolidate some of its existing facilities and increase the scale and flexibility of others.”

Working capital facilities comprised invoice discounting and an inventory facility – a funding solution that will facilitate the company’s expansion plans in the UK and mainland Europe.

“This is a nice deal,” says Jenkins. “In Yuasa we managed to find a business whose continuing operations are fundamental to sustaining the local economy of a community [Ebbw Vale, South Wales] and it’s satisfying and rewarding to know that we have had a part to play

in that.”

Simplicity spurs Dana forward

In the automotive space, July 2007 saw GE structure a €170 million (£128 million) pan-European, multi-jurisdiction securitisation deal to safeguard the future operations of the European subsidiaries of US automotive parts supplier Dana Corporation.

The deal was structured as a five-year multi-currency facility secured by the receivables generated across 12 operating units in Belgium, France, Italy, Germany, Austria and Spain. The proceeds were reinvested in the European businesses, including the repayment of existing inter-company debt.

“The Dana deal was one of our largest transactions of this type to date, and it represented a unique offering in the European markets. That we understood the business from multiple perspectives was paramount to the deal’s success. We needed to comprehend how the structure would operate across jurisdictions from the legal capability perspective, as well as simply understanding the business’ requirement. The covenant-light securitisation was a elegant solution to what otherwise could have been a hugely complicated problem.”

Ready and ABL

Jenkins admits that five years ago he couldn’t have conceived of putting in place a $250 million (£128 million) deal for a multi-jurisdictional or global business. The step-change appears to have come from a simple belief, originating in the US (where else?), that big business can use asset-based finance effectively.

“If you compare what’s happening here to what’s happening in the US, ABL is in the early stages of its evolutionary cycle. There are multi-billion dollar deals being done as ABL deals in the US. The Ashtead Plant Hire deal – a deal that was sealed as long as three years ago – was done on an ABL basis. And last year’s Hertz deal was effectively structured as an ABL deal.” (See box out)

Jenkins claims it is only a matter of time before we see similar approaches to deal leveraging being adopted by UK business finance providers as the demand for flexible funding among the business community grows.

A lending hand

Although it is something of a work in progress, many argue that market conditions are working in favour of large-scale ABL adoption. A statement released by Kate Sharp, chief executive of the Asset Based Finance Association (ABFA) in October of last year suggests why businesses might want to consider asset-based funding propositions over the coming months.

“The tightening credit conditions caused by the sub-prime mortgage crisis, the resulting increased corporate lending rates and the proposed tax changes in this week’s Pre-Budget report are putting UK business under substantial pressure. This is the time for financial directors and managing directors to review the amount of capital they have tied up in existing assets, which could provide the liquidity needed to sustain company growth.”

Similarly Jenkins believes there will be flight towards ABL over the course of the year, both within the transactional M&A market where GE does the bulk of its business, and within the restructuring segment where the balance of its operations are conducted.

“We helped more small businesses than in any other year and were as active in the mid-market MBO space as we’ve ever been,” he says. “At the same time we were able to push through a number of landmark deals like Dana, like Yuasa. And achieving results like that in the face of challenging market conditions is something the team can be proud of.”

US mega deals

In 2004, US-headquartered equipment rental business Ashtead Group Plc secured a syndicated asset-based debt facility to the tune of $675 million (£380 million). New terms were agreed in 2005 advancing the facility to $800 million (£407 million) until 2010.

Global car rental brand Hertz also opted to borrow against its assets, securing a $1.6 billion (£0.8 billion) facility that was subsequently amended to $1.8 billion (£0.9 billion).

UK done deals 2007

Bolton Engineering Co, April 2007

The supplier of aircraft components and conveyor systems undergoes a management buy-out for an undisclosed sum, funded by GE.

Atlantic Foods, May 2007

GE completes a £9 million debt package as part of the £17.5 million buy-in management buy-out of Hampshire’s Atlantic Foods, a supplier of food products to restaurants, pubs and food distributors.

Fuel Parts, September 2007

The management buy-out of vehicle and engineer supplier Fuel Parts is facilitated by GE with the provision of a multi-million pound funding package combining an invoice discounting facility and a revolving line against stock.

Denman Group, November 2007

GE facilitates the management buy-out of Denman Group, an installation and maintenance specialist for refrigeration systems, with an undisclosed funding package.