Asset-based Lending – Capital that works

Venture Structured Finance's Peadar O'Reilly and David Coulton talk to James Harris about the benefits of ABL.

Priorities have changed. David Coulton, regional director at Venture Structured Finance says: ‘People buy people at the end of the day and the loss of confidence in traditional bank funding has made personal relationships more important than ever before.’

The value-add service element to asset-based lending (ABL) is increasingly being sought out by businesses who wish to work with financiers who will act as, trusted partners: ‘ABL is dynamically linked to sales performance and so by its very nature a provider will remain close to the business. At Venture we pride ourselves on taking the time to understand our clients’ needs – taking full account of sector, market and regional factors,’ says Coulton who is based in Milton Keynes.

It’s a philosophy that has informed some significant organisational changes. Venture has long comprised two client centres – North and South, whilst Venture Structured Finance (VSF) used to operate solely out of the Haywards Heath head office. VSF has now been integrated into both client centres, aligning to the already regionalised sales force. The restructure will enable local decision-making and enhance thorough yet quick deal turnaround. It is hoped that this nimble approach will help UK businesses conquer the recession and be ready to react to the recovery.

Peader O’Reilly, regional director at VSF, says: ‘The integration of VSF into our client centres will mean that we will be more responsive through the recession and towards the recovery, acting in a nimble manner and allowing our clients to emerge in a position of strength.’

A solid venture

Capital-constrained businesses have shelved acquisition plans, but the recession has generated other types of deals. Coulton says: ‘The year to date has been very slow in terms of transactional deals. Most of the work that we’ve done has been refinancing deals where other funders have exited the market.’

As traditional lenders withdraw from the market, ABL providers have been able to step in. Banks are being very risk-averse at the moment and businesses are struggling to obtain sufficient working capital,’ says Coulton.

With an asset base to lend against, ABL providers can offer more flexibility. O’Reilly notes that senior debt loans are often restrictive and banks will employ ‘draconian measures’ if a business breaches a covenant.

Moreover, in a period of market uncertainty, it is easier to predict the size of the facility available: ‘If you know the asset base has a certain value, then it’s easy to make an estimate of what can be provided. It’s only once you go through the whole due diligence process that you find out how much banks will provide,’ says O’Reilly.

Although the deal front has been quiet, O’Reilly is seeing a lot of activity in the distressed M&A space, however this brings its own challenges. O’Reilly says: ‘This type of deal differs from normal M&A because you’re less likely to get exclusivity, so a buyer can acquire the company at the last minute. Also it’s very important to get involved quickly to protect the inherent value of the business.’

Timing is key

Distressed deals have been driving the transactional work this year but, according to O’Reilly, more conventional M&A work is starting to emerge. VSF recently refinanced the facilities for Regency Mowbray Company, a manufacturer of ingredients for the food industry, and provided capital for its acquisition of Lea Green Foods for an undisclosed sum.

The ABL arrangement comprised a receivables finance and plant and machinery facility, as well as an Enterprise Finance Guarantee loan. O’Reilly says: ‘The incumbent bank wasn’t being unsupportive, but the structure of the deal didn’t give the company enough headroom. That’s why our facilities were better suited.’

In this deal, timing was critical. Lea Green Foods had agreed to sell the business the year before to a different purchaser, only to be let down at the last minute, owing to a lack of banking appetite. The company was therefore keen to set a date and move quickly. O’Reilly says: ‘From the initial meeting to the approval of facilities, it took a matter of weeks. If we have a corporate adviser providing key information, we can do deals in less than a month.’

Coulton is confident about next year: ‘As markets return, sales and book debts will grow, and so will the availability of funds, helping growing businesses aspirational needs as they return.

Nick Britton

Nick Britton

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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