Leasing Life’s Asset Finance Distribution Conference 2007, which
took place in Brussels, raised a host of key issues. Over the next
two pages Brian Rogerson reports on the key ones.
Industry consolidations continue apace as UK and continental
European lessors seek to grow by acquisition.
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Furthermore, many lessors and banks view acquisition as the best
options for entering the recent accession markets of central and
eastern Europe. The bullish economic climate to date has meant that
companies are awash with investors’ funds awaiting investment in
expansion.
However, as experience shows, the path of good intentions is
littered with the remains of acquirer companies that failed to
think the purchase through further than the stage of due diligence.
To many chief executives the actual acquisition turns out to be the
easy bit – and only then do the changes of a
less-than-thought-through integration appear, and post-acquisition
synergies fail to arrive.
Lindsay Town, managing director of asset solutions at Bank of
Scotland Corporate, told delegates at the conference that: “There
is no such thing as a merger; it is always a takeover to someone.
There can never be a complete balance between the acquirer and the
acquired companies. No matter how hard people try, integration is
generally seen negatively – and one party will dominate.”
Town stressed that it is crucial for this imbalance to be
recognised as early as possible and acted upon. If not the cost
benefits of the integration will be jeopardised. “In acquisition
terms,” he said, “two and two rarely makes five – it usually makes
around three.”
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By GlobalDataRespecting cultural differences
Town believes that acquiring companies ignore cultural
differences at their peril: “These cultural differences always
exist even in closely-related businesses. It is crucial to
recognise what they are and deal with them – or you will find they
have teeth and can bite.”
Rita Jakusch, head of strategic business development at
UniCredit Global Leasing (UniCredit), admitted that there was no
absolute recipe for integration of differing cultures, but for a
start: “You can get people talking to each other”.
“To build up a unified culture in a company that has expanded as
much as UniCredit has in recent years,” Jakusch said, “it is
crucial to have a set of joint values. The Integrity Charter is a
set of values adopted and shared within the UniCredit group by all
employees.”
Managing integration
Yves Mehaudens, head of business development and integration at
Fortis Lease Group, stressed that it was important not to accept
unrealistic expectations from integration.
“You should ask,” he said, “what are the expectations of the
acquired entity. How does the acquisition bring a solution to the
problems it was facing? What are the personal objectives of its
staff in terms of career expectation, mobility and the bonus they
may have been expecting?”
“For integration,” he said, “time is of the essence. You should
set the pace and keep the momentum – even if it is disruptive. The
integration objectives, which should be transparent and
quantifiable, must be clearly outlined in an Integration Plan and
endorsed by the whole organisation.”
“Although there is no magic formula for integrations,” Town
said, “it is important for companies to set out their expectations
as early as possible. Then they must track and lead performances –
but not to make it a sub industry. In addition, it is paramount to
get the right people in place from the start – anything else is
unfair on the people and the business.”
Jakusch added: “Once integration has been successfully managed
there begins a huge potential for growing and developing on the
first results. You should aim at leveraging on current business and
exploring organic growth opportunities – and ensure that growth
initiatives are already in place.”
Key boosts its syndications
The syndication of loans – revolving credit facilities, term
loans and junior debt instruments – has long been a feature of the
traditional banking industry. In 2006, the largest arranger in the
European market put together $79bn (£26bn) of loans across 112
transactions. The largest 10 players accounted for some £472bn of
loans.
Andrew Slatford, European credit and risk director of Key
Equipment Finance, said that lessors syndicate deals typically to
generate fee income. “This of course,” he said, “represents a boost
for return on assets or return on equity.”
“Secondly,” he said, “they do it to manage credit exposures.
Internally, a credit application might have been flatly declined
for risk reasons, or it could be a case of, say, $2m outstanding to
a customer being acceptable – but $4m not – leaving a sales person
at risk of losing that customer.”
A third reason is that many lenders have rules and exclusions
which place a deal “out of the box”, or perhaps an extra level of
approval required becomes a disincentive to keeping the transaction
for a higher own-book exposure.
“Another typical reason”, Slatford explained, “is that the
available price or margin on a transaction does not meet a lessor’s
internal profitability or pricing requirements. Investors, however,
may be attracted to the transaction at a price which still enables
the originating lessor to satisfy a customer while extracting a fee
or ‘skim’.”
Slatford stressed that lasting reciprocal relationships betweens
sellers and buyers are founded on trust, transparency and teamwork.
He said: “It is crucial to encourage dialogue and openness between
multiple levels and functions of respective organisations. Also to
foster a deeper understanding of each other’s philosophy,
parameters and processes.”
He added: “If lease syndication is to have a durable impact on
market liquidity, trust is integral to its success.”
