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By GlobalDataAs well as being hungry for
the right new acquisition, head of asset finance Mike Francis
has also become a good friend of the UK’s broker community. Brendan
Malkin reports.
It is hard not to be impressed by Mike
Francis, the head of Investec Asset Finance (IAF).
Well-known in asset finance circles, last month
Francis authorised IAF’s acquisition of Universal Leasing’s
portfolio for an undisclosed sum, and also its purchase of a 75%
stake in Leasedirect Finance Ltd for £9.1m (€10.2m).
Many lessors have talked about buying
portfolios at discount rates during the recession, but few,
however, have done so.
Besides Abingdon-based IAF, which specialises
in small-ticket business, Close Leasing is one of the few other
leasing companies that have shown themselves to be determined
players in the market. It bought Tokyo Leasing last May for around
£14m. Epsom-based Aldermore Bank, a substantial new entrant in the
UK market, has also made several acquisitions over recent months,
most recently Heritable Asset Finance (see article on page
22).
Despite his company’s recent acquisitions,
Francis admitted that it is not easy to find the right targets,
even in the current economic climate.
“It is hard to find businesses at the right
price, and also sometimes there is a lot of competition around,” he
said during an interview with Leasing Life last month.
Francis, who said he had “passed up on a few
portfolios”, added that he had “looked” at Heritable Asset Finance
when it first came up for sale at the end of 2009, but “not the
second time”.
One portfolio, however, which Francis did not
pass up on was One World Leasing, which IAF bought back in January
2008.
Brokers
As well as having impressed the
leasing market through his willingness to buy businesses and
portfolios, and in the process helping to put some life back into
it, Francis has also made some friendships with brokers along the
way.
Crucially, IAF is committed to working with its
existing brokers in relation to secondary rentals.
“Secondary rentals with the right brokers will
continue,” Francis said.
This is particularly welcomed by brokers after
Leasing Life reported that Broadcastle, the Siemens
Financial Services UK subsidiary, had axed secondary rentals for
its brokers (see Leasing Life 197, February 2010).
Given the fact that many lease intermediaries
make more money from secondary rentals than they do from the
initial lease term, this must have come as particularly shocking
news.
Commenting on Francis’ decision to keep the
secondary rental agreements, one broker said: “We are just pleased
he did the right thing and agreed to honour them.”
Francis has also won over the hearts of many
brokers by tightening up his use of intermediary-sourced business,
rather than culling it altogether, as many other UK bank-owned
lessors have done.
Francis said this belt-tightening process began
even before the recession started – and it appears to have
continued into the downturn.
Back in March 2009, Leasing Life
reported that Phil Ross, IAF’s former head of vendor finance,
informed brokers that, with the exception of public sector
transactions, maximum deal sizes would total £25,000, and maximum
terms would be five years. Directors’ guarantees were also required
for all limited company transactions where tangible net worth was
less than £100,000.
In addition, Francis said last month that IAF
had reduced the number of brokers it used from around 85 to
“between 50 and 60”.
However, in fairness to Investec, all these
measures seem sensible ones to take during a downturn.
Furthermore, Francis made clear that Investec
Asset Finance is now getting more business from brokers today than
it was before the tightening-up process began. He has also
expressed publicly that he is “committed” to the broker market.
“We are looking to expand our broker base in
some areas,” added Francis.
Acquisitions
Meanwhile, as well as maintaining the
traditional broker model, Francis has other serious matters on his
hands – not least developing his recent acquisitions.
Francis is particularly pleased with IAF’s new
majority stake in Deeside-based Leasedirect Finance Limited (LDF) –
not least as it offers new cross-selling opportunities.
“LDF can market Investec’s other banking
products,” said Francis.
LDF’s business is linked to the professions
financing sector – and many of its clients are top legal and
accountancy businesses.
In a statement to the stock exchange last
month, Investec said: “LDF will look to market complimentary
products offered by Investec that fit within their client’s
requirements.”
It added: “LDF will maintain its existing
relationships and continue as a brokerage sourcing quality
transactions to its existing portfolio of lenders as well as new
lenders that enter the market.”
By expanding on its existing professions
financing business, IAF will also be able to fill gaps left by
recent funder withdrawals from the market.
Besides professions financing, LDF also
provides automotive finance, and sells finance direct to customers
and via suppliers.
While LDF only trades through Leasedirect
Finance Limited, it has several non-trading entities, including
Equipmentfinance.com, The Personal Loan Co, LDF professions,
Vehicles in Practice Ltd and Quantum Funding.
Latest financial results show that LDF, in
spite of the recession, remains very much a viable business, with
net profits for the year to 31 March 2009 totalling £133,834,
against £1.7m the year before.
Gross profits declined 30.08% during the same
period. LDF signed block discounting agreements with Hitachi
Capital (UK) Ltd in 2005 and with ING Lease (UK) Ltd in 2008.
Francis said IAF will impose a “light touch”
over LDF. Paul Buchanan, LDF’s managing director, will run the
company alongside Francis. A statement said Buchanan will be
“joined by appointees from Investec”. Leasedirect’s 132 staff are
expected to remain in place.
Clearly not someone to do things in halves,
Francis authorised the acquisition of the portfolio of Universal
Leasing Limited around the same time as it bought LDF.
This also included the business of Hanover
Asset Finance Ltd, which Universal bought in March 2007.
He chose not to acquire Universal’s broker
business, the London-based Admiral Leasing PLC, because it was not
up for sale, although it did buy Admiral’s lease book.
The portfolio of Universal’s other business,
Virtual Lease Services Limited, is being sold to a third party
entity.
Time of change
The acquisition of Universal follows a
time of change at the Watford-based leasing company.
Its former parent, the German company GFKL
Financial Services AG, after offloading its Spanish leasing arm,
decided to sell 75% of share capital in Universal Leasing Limited
to three of its directors, including managing director Michael
Hughes, back in December 2008.
Subsequently, in early 2009, Hughes decided to
cease writing new business, except in subsidiary operations, having
earlier reduced head count in Universal’s Watford office by 26, and
also having carried out a securitisation through an SPV, ULL UK
Conduit No 1 Limited, of the majority of the company’s lease book
in mid-2008.
In the year to 31 December 2008, Universal
reported post-tax losses of £514,786 on sales of £124.3m, compared
to losses of £1.2m the year before.
Looking ahead to the future, the former
Universal-owned portfolio will now be fully integrated into IAF,
and “appropriate” existing staff will continue to run the
portfolio.
In spite of these acquisitions, Francis remains
committed to not just maintaining his core business in Abingdon,
Oxfordshire, but also expanding it.
“We plan to grow it by more than 10% during
2010,” Francis said.
In its financial statement for the year to
March 31 2009, IAF reported that it planned to “seek growth in its
book, primarily through the small ticket vendor finance division in
organic growth and the purchase of existing portfolios”.
However, Francis is not set on growth for
growth’s sake.
“It has got to be sensible new business. If the
right business is not there then we will not grow it,” he said.
Certainly, since the recession started, IAF,
which saw a drop in its new business from £153m in the year to 31
March 2008 to £114m a year later, has steered a cautious path in
relation to lending.
“We have very sensible credit policies. We did
see some slippage during the second half of 2008,” Francis said,
adding he had placed additional collections staff into IAF.
On the theme of risk, IAF gained headline news
in the UK media recently after it filed a winding-up petition
against Cru Investment Management, a well-known asset management
company.
It turns out, however, that the story was
something of a storm in a teacup – Cru’s debts are worth less than
£10,000, and these relate only to leases of office equipment.
IAF, meanwhile, looks set to become an even
more important player in the market. Not only is it well supported
by a healthy parent, it is one of the few UK lenders to be sourcing
business from brokers. It is also committed to a path of growth at
a time when many lessors are still looking to make fire sales.
