How can businesses unlock the value of their assets to fuel future growth?
Well let me start by saying that given the last couple of years that we’ve had I think its quite refreshing that we are all starting to think of growth instead of survival. However in order to grow, businesses must have the confidence to do so. They are increasingly seeking dependable sources of funding that will provide sustainability – rather than perhaps the “quick-fix solutions” of the past.
Asset-based lenders, such as Venture, look at all the assets on the balance sheet to provide a single source of funding. Predominantly it is the sales ledger, as that is the focal point of everything that an asset based lender does. However we can also lend against other assets such as inventory, plants and machinery, as well as freehold property.
Can businesses borrow against intangible assets within their business?
The tangible assets are what we use to create our borrowing assets, but we do look in certain situations at lending against the future cash flow of the business. We may take into consideration, for instance, some intellectual property rights (IPR) that may be commercially valuable but difficult to quantify.
It’s a funding that’s very much based on common sense. Asset based lenders like to know the value of the collateral that they are lending against, and it can be very hard to quantify the value of intangible assets.
Is asset-based lending a viable option in pursuing acquisitions?
Absolutely, our lending is ideal for acquisitions because it gives certainty. It is quite easy to calculate our borrowing levels against the value of the assets so it does work very nicely, and it gives growing businesses the headroom required to maximise on good opportunities.
Some businesses have come through a dreadful two to three years in reasonably good shape given what they’ve been through. Those companies are looking to the future, examining opportunities for growth. In particular they are looking at some of their competitors who haven’t come through the last couple of years in such good shape.
That is where I think a lot of corporate management teams are turning their attentions to, seeing whether there are any bargains to be had in the sector. ABL enables the acquiring management team to leverage assets from within its existing businesses as well as the assets of the target, and I think asset-based lending has come to the fore in their thinking.
What kind of deals have you been involved with recently?
The deals that we have done recently have been in the manufacturing industry. We did several in the automotive sector last year where clearly there had been a collapse in the market and traditional lenders were very nervous of the sector.
Businesses in the manufacturing sector are very appropriate for asset-based lending as they have assets such as plant machinery, property. We completed a transaction last year where the management team and business had come through the previous two years in reasonable shape.
This business was in need of some progressive refinancing and they wanted increased headroom to meet anticipated growth from its bigger customers. It went to its incumbent bank who didn’t want to know because of the sector it was in. We completed the deal providing a funding line of approx £3.5 million and the business is now nearly back to its pre-crash sales.
What kind of activity do you have in your deal pipeline?
What we are seeing at the moment is corporates looking around at their finance needs for the next couple of years. We are seeing the early stage of the ‘wall of re-financings’.
There is now evidence that more corporates are dipping their toes in the water, we are very pleased to see that those who wouldn’t have considered our type of lending in the past are now switched onto the benefits it can bring.
Cliff Meek, regional director, Venture Structured Finance