One criticism that is often levelled
at leasing companies – especially large ones – is that they have
too much inertia. They are too slow, perhaps, too inflexible and
too cautious to innovate.
Go deeper with GlobalData
Shire Leasing, it’s fair to say, has none of these
problems. The company, which turns 22 years old this month, hit the
recession as the UK’s largest lease broker, and despite suffering
alongside its peers in a contracting market, has emerged in good
shape.
The total volume of leases transacted by Shire
in the year ending March 2012 was £55 million, with the company
projecting £65-70 million for the year ahead, as well as a 25%
increase in own-book funding, building on the existing £44 million
of receivables.
While this performance is still on a different
level from the £150 million of sales-aid leasing business turned
over in the year of the Lehman brothers collapse, current levels of
growth at Shire compare favourably with the broker market at
large.
According to the National Association of
Commercial Finance Brokers, business transacted by members in 2011
was only 3.5% up on the previous year – a rate far outpaced by the
27% volume increase achieved by Shire in the comparable period.
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By GlobalDataIn order to make this recovery possible, Shire
had to become a much more complex business than it had been
pre-recession, and had to make the most of every opportunity that
came its way.
As a result, what started as a small midlands broker
founded by cousins Martin Smith and John Worton in 1990 is now more
properly known as the Shire Business Group – a growing conglomerate
employing 185 staff and offering products as diverse as insurance,
legal services and marketing.
Doing things by the
book
Conventional wisdom might suggest that these are
not the immediate paths of expansion for a leasing broker, many of
whom consider the ability to arrange the occasional invoice finance
transaction a taste of the exotic.
To hear Worton and Smith talk through the
history of their business, however, the logic and indeed the
necessity of the business’ diversification programme soon becomes
clear.
The story starts with a decision made by Shire
in 1999, and made by many other brokers in the UK – to start its
own book. While some brokers take this route as a way to “cherry
pick” the most lucrative deals available, the thinking at Shire was
that the ability to underwrite would increase the company’s
pedigree as a broker as well as provide income from leases held to
term.
Consequently, rather than just introducing
deals to lenders, Shire makes an underwriting decision on each
proposal, taking it onto book if standards are met. Lenders are
then offered the chance to buy the paper if it fits their
requirements – as Smith says, “we write all our business onto our
book – the only question is whether it stays there for a day or
forever.”
This strategy came about partly as a response
to lender fund shortages during the credit crunch years, since it
allowed Shire to retain good business even if no lender had
appetite for a particular asset or customer type.
However, it has also had a long term benefit to
Shire’s efficiency as a broker – lenders, Worton argues, are much
more confident about buying deals that Shire has already had the
confidence to underwrite for itself, meaning a higher acceptance
rate overall.
The third advantage to come from Shire’s
underwriting policy is the additional level of cooperation it
allows with vendor finance partners. To equipment sellers that use
Shire to finance sales, the broker’s ability to take deals onto its
own book when a lender cannot makes it a flexible partner.
In order to do so, however, Shire has to be
able to take additional securities. Smith explains: “when we can’t
underwrite based on a customer balance sheet, we could perhaps loan
on the property, which a regular lessor can’t do. This shows our
vendors that we would go an extra mile to make a deal work.”
New family
It was this
necessity that kick started Shire Funding Solutions, the group’s
rapidly growing business loans arm. The next component of Shire’s
own-book experience to develop into a line of business was debt
collection and recoveries, now offered to other companies through
subsidiary Shire Recoveries.
Having offered collections services to both
vendor partners and end customers alike through Shire Recoveries,
Worton and Smith realised there was great potential to be had in
offering other outsourced products to end customers.
The next subsidiary to be launched on this
basis was Shire Insurance Services, a brokerage offering a general
white label product to customers in fields such as engineering and
haulage, and currently developing a PMI offering. Since insurance
was not a discipline Shire had developed for itself through leasing
business, the venture was started through the acquisition of an
insurance broker, which has been grown from an annual commission
level of £400,000 at inception to more than £1 million today.
Once the water had been tested with insurance
sales, yet another branch of the Shire group was founded – Shire
& Co Legal Services. Shire & Co is a typical example of the
group’s pragmatic approach to change – set up to offer brokered
legal services to vendor partners, its real success came in selling
insurance to law firms to cover litigation.
Now its direction seems set to change again in
order to take advantage of the boom in professions finance, Worton
says.
“It gives us a presence within the professions
sector, and this is a route into practice loans. We want to do
more, but in terms of wholesale funding it’s relatively difficult
to get block discounting for. Nevertheless, our target is that we
want 30 percent of Shire & Co income to come from practice
loans – the commissions on insurance can take 9-18 months, while
practice loans generate much more rapid revenue.”
The most recently added component of the Shire
Business Group is perhaps the most unlikely from the perspective of
a pure leasing broker – Shire Marketing. This came from the
appointment of Jacky Morgan, an in-house head of marketing, to
revitalise the Shire brand in 2010.
With the brand work largely complete, explains
Smith, there was no reason not to use the group’s newfound
marketing resource to provide potential add-ons to finance
relationships with vendors – “Our suppliers were the natural
customer base for this, since through boosting their marketing
capabilities, we inevitably drove a greater volume of leasing sales
through the relationships.”
Feeding the 50,000
At
this point in the story of Shire’s diversification, the objective
behind the spread of the business become clearer – growth driven by
the offering of more products to customers rather than purely by
the acquisition of more customers.
After all, while Shire lost out on considerable
business volumes during the market contraction of 2008/2009, it
retained one extremely valuable asset from the pre-recession
period: a book of 50,000 existing and past customers. The
development of five new lines of business only multiplied the value
of this asset, says Worton:
“If you simply call customers to ask if they
need new assets funded, the chances are very slim that you will
catch them on a day when this is on their mind. However, the more
products you can offer them, the more chance there will be
something in that offering they need.”
To him and Smith, this turns Shire’s book of
50,000 customers into 300,000, and turns the company’s approach to
sales into something approaching what he calls “the traditional
British bank manager model”.
“The idea is to turn conversations with
customers from “out and out” sales conversations into
businessman-to-businessman conversations – the aim is to see the
director as the customer, and make them aware of all of our
business lines.”
Smith adds that they are aware of the pitfalls
of overenthusiasm in cross-selling, however: “it’s not always
necessary… If we are talking to a fish and chip shop about a fish
range, we’d have a challenge on our hands offering them debt
collection or marketing.”
Overall, leads to the tune of 600 per month are
traded between the parts of the group. While the directors admit
that this caused some culture shock initially in the naturally
competitive sales environment of a lease broker, time and
incentivisation quickly naturalised the process.
Despite the emphasis on cross-selling, Shire
remains hungry for new business.
The group will do direct deals under the banner
of Shire Asset Finance, but its engine is still sales-aid leasing.
As well as providing the finance deals that are its bread and
butter, sales-aid programmes also provide a steady stream of
additions to the Shire’s vast contact book.
While the sheer number of small-ticket
customers on that book has caused problems for Shire in the past –
in a global recession, there are always bound to be collections
headaches caused by supplier failures – in the end, it is the scale
of the business, along with its knack of finding ways to exploit
that scale, that has kept it going strong through the lean times.
