Close’s acquisition in May of Reliance Financial Contracts has
significantly ramped-up its broker capability, and more buyouts may
follow
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This year Close Asset Finance (CAF) celebrates its 21st
birthday. Although the birthday celebrations come at a time of
great economic uncertainty, the facts to date suggest the company
is holding its own in the marketplace.
CAF sits within the banking division of its parent Close Brother
Group plc. In its interim results for the six months to January 31
2008 the banking division revealed a profit of £37.7m (2007:
£37.4m), an 8 per cent increase in its loan book to £2bn, “no sign
of deterioration in bad debt”, and a bad debt charge remaining
steady at 1 per cent. CAF represents about 30 per cent of the
bank’s business finance division.
Furthermore, in its management statement for the three months
ended April 30 2008, the group announced that its “conservative
approach to balance sheet management” meant that the banking
division remains “well capitalised and soundly
financed”.
Mike Barley has been chief executive of CAF since 2003. Prior to
that he was managing director of the company for 12 months and,
before that, chief executive officer of Close Consumer Finance.
There he had responsibility for motor finance and also headed up a
separate company providing military funding. Before joining Close,
Barley was managing director of Wagon Finance and in 2002 was
elected chairman of the UK Finance & Leasing Association’s
Motor Finance Division.
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By GlobalDataAlthough Close Motor Finance comes ultimately under his aegis,
it is the various component parts of CAF upon which he most closely
focuses on a daily basis. “Our target market,” he remarks, “is
firmly in the small to medium-sized enterprises (SME)
sector.”
Business success
CAF’s total book of around £650m of receivables lies within five
asset-finance businesses. Transport (principally heavy plant and
contractors’ plant) comprises £270m, engineering (predominantly
machine tools) some £100m, print (with its long-standing
relationship with Heidelberg) some £140m, professions (for
professional partnerships) some £90m, and aviation finance some
£50m. The company employs specialist sales staff in each sector.
During his tenure the company has grown to the extent that he
estimates that it funds between 25 and 30 per cent of the
smaller-end of the UK SME asset-finance market.
He believes that success has come from each separate business
having its own managing director for whom responsibility for
quality and cost efficiency ultimately resides. “We operate on a
de-centralised basis,” he says, “with each director responsible for
the standard of new business proposals and on through to
back-office administration and collections.”
The CAF business model, with its reliance on personal
relationships, locally-based staff, and taking time to tailor a
deal, is sometimes said to be against the grain of current business
dogma – which tends towards increased centralisation and impersonal
decision making.
Furthermore, the group is still on the acquisition trail. This
March Close Brothers Group purchased two niche lending business,
Commercial Acceptances Group and Amber Credit, with a combined loan
book value of £145m for a combined premium to net assets of around
£9m.
Also, last month Reliance Financial Contracts (RFC) was acquired
by CAF. Hugh Sigrist, co-founder of RFC, will remain as managing
director of the company which will retain its current
name.
Sigrist stresses that retaining the RFC brand was a prerequisite
of the transaction since during its 18 years of existence the
Brentwood-based brokerage has become well-known nationally,
predominantly in the business-user sector.
Future deals
In 2008 the company hopes to substantially increase new business
and will be considering deals ranging between £5,000 and £500,000.
The company also operates several joint ventures with manufacturers
and conversion companies. It is one of the UK’s largest brokers
specialising in taxi finance, and over the years has run many
manufacturer promotions currently operating the Kia-RFC Taxi
Scheme.
Sigrist has for some time been keen to develop the business
further. “It had been apparent for some time,” he says, “that we
have needed a lending book of our own. Over recent times I have
discussed issues with certain potential investors but was never
totally convinced of their long-term intentions to the RFC
brand.”
Enter Close Asset Finance, which has a sound record in allowing
those companies that it acquires to operate under their own brand
and to perform to their strengths.
“I have known Mike Barley for a long time and have had informal
discussions with him over the last two years or so,” Sigrist says.
“These became serious around 12 months ago when I was introduced to
Sharon Bishop, the managing director of Close Business Finance at
CAF.”
“Some of my staff at RFC have been with me for many years.
Victoria Fisher, our operations manager, for example, has been with
me for 12 years.
“It was very important to me that all my longstanding loyal
staff would have good job security and increased benefits under any
new shareholder.
CAF was able to safeguard the team which, coupled with the brand
retention, removed most of the hurdles to the acquisition.” CAF has
taken a long-term lease over RFC’s office in central Brentwood –
which is actually owned by Sigrist – and CAF directors Mike Barley,
Sharon Bishop and Stan Chan have joined the board.
RFC currently employs eight staff – which Sigrist predicts will
need to rise to achieve the intended growth in new business over
the next five years. The company is also on the lookout for
experienced new-business getters at various locations around the UK
– no matter what their background may be, either broker or finance
representative.
Business will be brokered as before, but with appropriate deals
written on CAF’s book. Sigrist says that CAF’s stance as a
mid-range lender fits RFC’s portfolio, not least regarding the more
complex structured deals that are needed with some applications.
Also for putting together sales-aid products, an area RFC has
specialised in for many years.
He stresses that all RFC’s other funders will only benefit from
this new shareholding. As a result of the new investment and
positive growth objectives there will be more overall business to
fund between all the supporting lenders.
Sigrist recognises that the timing of the acquisition is
excellent given the current turmoil created by illiquidity in the
finance market. “Having access to adequate funds,” he says, “and
being able to balance one’s efforts between brokerage and own book
is a very healthy position to be in at present.”
Growing challenge
But CAF’s growth trail does not end there. In late 2007, Close
Leasing was launched by CAF to underwrite more challenging
middle-ticket leasing deals that often get lost through lack of
time available to underwrite them properly.
Apart from CAF’s direct business, it has in recent times
increasingly looked to intermediaries for new business leads.The
acquisition of Kingston Asset Finance, formerly called Cattles
Commercial Finance, in January 2005 was an example of this, and has
proved what Barley describes as “an excellent purchase for us where
its specialist staff counts for much of its success”. One Business
Finance is another wholly-owned operation that specialises in the
provision of asset-secured working capital, and which sources
business via brokers.
Although Barley does not anticipate broker-introduced business
rising much above the current level of 25 per cent of the total, he
acknowledges that the current more professional breed of broker has
much to offer the leasing sector.
Although CAF’s business model has been tried and tested over the
years, the company is not immune to the current economic downturn,
which Barley suspects will prove extremely challenging. Despite few
signs of a rise in its defaults, the company has tightened its
underwriting and is keeping a weather eye on those sectors that
could prove vulnerable, particularly construction.
He points to the rise in business failures, high fuel costs and
growing inflation – all classic signs of an impending recession.
“The downturn,” he stresses, “is likely to be deeper than many
predict and to last longer. Despite this, we are on target to
continue growth at present levels and are extremely optimistic for
the next 21 years.”
