When Edward Symmons (ES) was drafted in to conduct a valuation of organic foodstuffs as part of an asset-based lending (ABL) transaction earlier this year, it was a perfect symbol…

When surveying and valuing business Edward Symmons (ES) was drafted in to conduct a valuation of organic foodstuffs as part of an asset-based lending (ABL) transaction earlier this year, it was a perfect symbol of how company valuations are evolving to encompass all manner of asset classes against which to secure funding.

Gary Quaife, lead partner of the Collateral Review and Valuation (CRV) team at ES and formerly with asset-based lender Burdale Financial, acknowledges the role the money markets have played over recent months in this shift of emphasis to ABL in the UK’s funding market.

“As the credit crunch continues to bite, UK businesses are turning to their assets to release cash flow to fund business activity and growth. Asset-based lenders have traditionally advanced against receivables, yet more are being challenged in terms of the variety of assets they are financing and the market sectors into which they are being led,” says Quaife, who adds that this poses an additional challenge for advisers in addressing a larger set of service needs.

Team effort

ES is meeting market demand for an integrated asset valuation and review service in the pre- and post-funding phases with the creation of the CRV team, comprising Quaife, Jamie Gould, Charlie Banister and Mike Sanderson (see Meet the team p18). It has been established by ES partner Robin Pritchard, national head of ES’ Machinery & Business Assets division, his team of valuers, and Quaife in order to provide a more comprehensive review of assets used as security by a lender.

“We are experienced lenders with a large team of valuers behind us,” explains Quaife, “which means that when we talk to asset-based lenders, we can approach the discussion from both perspectives. Essentially, it enables us to talk to the lender in ‘lender speak’ on those areas, which are important to them when structuring a facility.”

The idea of combining the asset valuation and review process has reaped rewards. Since the team was established in November 2007, more than 40 collateral review and valuations have been completed, spanning a range of asset classes in the UK, Europe and the US (see right).

The changing face of ABL

Growing awareness of ABL as a useful corporate finance offering can be seen in the number of larger deals being done, such as the £385million refinancing of high street retailer Woolworths, which completed in January.

In addition to these larger deals Quaife foresees a pipeline of smaller transactions in 2008: “Beneath the larger transactions, ES is seeing facilities of between £10 million and £50 million being completed on a more regular basis.”

Gould agrees: “In the last couple of years the ABL industry has shifted significantly towards larger transactions that encompass all asset classes. It is in response to this change within the UK and wider markets that the CRV team has been set up. We are confident that the team will grow in line with the sector, handling transactions in the UK and abroad across a range of asset classes.”

Another indicator of ABL’s strength is the £14 billion advanced to UK businesses with, according to the Asset Based Finance Association (ABFA), the number of businesses using ABL – stock plus other assets – jumping 200 per cent from 2006 to 2007.

In addition, ABFA’s third quarter results for 2007 show that companies with a turnover of more than £1 billion have increased their appetite for ABL to help finance M&A as private equity and other forms of debt are increasingly difficult to secure. Funds advanced to this sector have exceeded £3.2 billion, an increase of £456 million on the second quarter of 2007.

The impact of traditional debt lines tightening up on the demand for ABL funding has yet to be assessed in full. However, what was a relatively embryonic ABL offering in the UK market is now attracting keen interest from UK businesses that are beginning to vote with their feet. The ABFA is due to publish its year-end results and the expectation is that the market’s demands over the second half of 2007 will have transferred into dramatic growth spikes for the UK’s asset-based lenders.

Up and running

“During 2007, ES has completed a number of valuation assignments for asset-based lenders, including Landsbanki Commercial Finance (LCF), GMAC and Burdale Financial,” adds Pritchard.

In October last year ES undertook valuations of real estate, plant & machinery and inventory of components manufacturer Precision Technologies Group as part of a £9 million refinancing backed by LCF.

The firm also completed a multi-million pound valuation of the plant & machinery assets of UK print finisher Celloglass in support of a management buy-out funded by Lloyds TSB Commercial Finance, and advised sole shareholders Ian Loggie and Mike Stephenson on the valuation of four properties, plant and machinery across nine sites in the acquisition of eight cardboard packaging businesses from Mondi Packaging.

And the pipeline is set to continue this year, with the CRV team adding to that work flow: “We are currently processing a number of transactions where we are being asked to provide valuations and reviews in respect of property, plant, inventory and receivables in the UK and across Europe,” reveals Quaife.

Under current market conditions, the funding benefits of ABL are convincing and the mid-market is becoming more familiar with its advantages. “It’s our objective to provide the ABL market with a cohesive review and valuation proposal, and it is something that we regard as a national product that will be developed to create a spine down the country servicing the UK mid-market,” says Quaife.

Gary Quaife,

Lead Partner, Collateral Review and Valuation team

Edward Symmons, London

T: 020 7955 8426

E: gary.quaife@edwardsymmons.com

Robin Pritchard,

National Head, Machinery & Business Assets division

Edward Symmons, London

T: 020 7955 8420

E: robin.pritchard@edwardsymmons.com

Done Deals

The CRV team has acted on a range of mandates since inception:

• ES conducted a collateral review and valuation of books amounting to some £60 million for a UK-based retailer of books

• The team performed a collateral valuation of organic foodstuffs in the UK, the value of which reached £12 million

• Plant & machinery worth £45 million was assessed by ES on behalf of a UK-based service provider of railcare maintenance

• A manufacturer of plumbing parts to the UK and Continental European markets underwent a collateral valuation of inventory, plant & machinery and property to the tune of £22 million

• The CRV team managed the collateral valuation of a UK manufacturer of specialist steel products, comprising inventory, plant & machinery and property totalling £17 million