different in many ways. How will they fare once they eventually
merge?
Although the proposed Lloyds TSB takeover of HBOS still requires
shareholder and regulatory approval, the chances of it going ahead
are high given the current banking crisis and the reported
willingness of HBOS executives to accept the deal.
Go deeper with GlobalData
For commercial vehicles and motor lessors the most revolutionary
feature of the takeover will be the shape of their respective
sectors if Lloyds TSB Autolease’s (LTSBA) 129,000 vehicles and
Lex’s 250,000 vehicles are merged into one super-fleet.
Lloyds and Lex have a similar evolutionary path and both are
headed by experienced fleet men – Jon Walden and Nigel Stead –
hardened by years in the industry. Both have faced the challenges
of integrating acquired fleets – with mixed results – and both have
introduced a specific culture into their respective companies.
“The scale of such a merger is so huge that the full impact
remains below the radar,” said an industry analyst. “If the banks
deal goes through, it will probably be quite some time before any
planned merger of fleet companies is brought about.”
Given that the newly-formed bank will inevitably be faced with
liquidity challenges, notwithstanding the Government’s rescue plan,
the need to shrink its balance sheet may lead to its fleet
operations being put on the market.
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By GlobalData“Who would have the appetite to acquire them?” the analyst
continued. “Most banks will be retrenching to their core and not
seeking to expand horizontally.”
One lessor added: “There are purchasers out there who would be
interested. The contract-hire industry has always attracted those
banking organisations seeking to make capital gains – and in good
times the capital gains in the fleet leasing market can be
substantial. When the market is doing well and residual values are
rising then lenders do very well indeed.”
“If it comes to an industry sale,” said an executive with broad
industry knowledge, “I cannot see any bank having the appetite to
buy both. Then, between the two, Lex would be a ‘tidier’ company to
acquire and, as such, would have a lower cost of integration. LTSBA
would be a totally different situation – with its recent
integrations not completed and deals running on different
paper.”
“Although Lloyds TSB is in the process of acquiring HBOS, it is
a widely held view that the better-run business in the leasing
sector is Lex”
The size of the new operation would probably have a
disproportionate effect on an acquirer’s profits, argued the
lessor.
“By bolting the two businesses together, the new company’s vast
buying power, and efficiencies of scale, could give a buyer a 20
percent return on equity – which any buyer would find attractive,”
he added.
A practitioner with long experience in the sector explained:
“Although Lloyds TSB is in the process of acquiring HBOS, it is a
widely held view that the better-run business in the leasing sector
is Lex.”
He continued: “LTSBA has carried the might and majesty of the
Lloyds TSB brand for some years, but the success of the brand has
been borne from treasury resource and core product pricing, along
with brand delivery to market.
“Its organisational infrastructure, underwriting stance and
channels of trade have been considered patchy by many observers in
the industry over the last few years. Its current portfolio of
clients is heavily influenced solely on price.
“By contrast,” said the practitioner, “Lex is a highly regarded,
well-managed brand with tight disciplines and controls imposed by
the management team, headed by their most recent owners HBOS.”
He described LTSBA as having a ‘can-do’ culture that translates
into the market as a ‘let’s just do it’ ethos, whereas the culture
in Lex, he argued, has emanated from HBOS as a cautious ‘let’s make
sure the business is worth doing first’ attitude.
The analyst agreed.
He argued: “Lex’s marketing and brand is stronger. The company
has achieved that largely by being out of bank ownership for most
of its history. Bank business models are very different to those of
independent companies.”
“The great thing about Lex,” the lessor stressed, “is that it
has persisted with its model successfully for a hell of a long
time.”
Jon Walden introduced Q6, a Six Sigma quality programme, into
Lex in 2002. Under Walden’s interpretation of this US-originated
business model, each of the company’s key processes that impact
upon service and cost are first analysed, then measured. Then,
depending upon the result, control processes are implemented to
improve performance.
If the ‘marriage’ between the two companies were to come about,
one observer argued that a key task would be the “fusion of the
sales and marketing functions of LTSBA and the back-room
underwriting, controls and business disciplines of Lex”.
“However,” he added as a caveat, “this would have to be managed
with a ‘steel hand in a velvet glove’ approach, since going too
tight on the back end means new business suffers – but too lax and
the provisions may quickly erase any reportable profitability.”
Lex’s Sales Academy is often held up as an innovative and
imaginative way of maintaining staff enthusiasm and loyalty. In
2004, Walden formed the academy to provide staff with the expertise
and skills they need to do their job effectively. It not only
measures success by examination, but also offers remuneration
rewards for those who are successful.
The analyst said: “Jon Walden is one of the most successful and
experienced lessors in the UK and would probably be the man to head
such an operation. But whether he would want to do it is another
question.”
“Lex has the smarter systems in place and the smarter staff,”
the executive opined. “It is also more profitable per unit
financed. Bank of Scotland Vehicle Finance’s fleet of 65,000
vehicles was successfully subsumed into Lex’s existing system.”
“By contrast,” she added, “LTSBA has been acquisition-happy for
many years and has continued running multiple systems to support
the various acquired companies. The company is not process driven.
It is a shame that it is not a case of HBOS acquiring Lloyds TSB
rather than the other way around.”
Nevertheless, Stead is undoubtedly a survivor with many years’
experience of managing consolidations and takeovers. He also has
trade association experience and is currently chairman of the
British Vehicle Rental and Leasing Association.
In the final reckoning, any amalgamation will need to be
delicately formed and shaped by the needs of the parent and the
requirements of the market.
The practitioner concluded: “Whatever the outcome, there are
those in the marketplace who love one and despise the other.
Putting these aside, the brand chosen to be promoted post-merger
would need heritage and legacy to carry confidence.
“LTSBA has good business levels based on pricing, while Lex has
a strong brand with stronger customer loyalty at all three entry
points – end-user, provider and manufacturer.”
At the end of the day, a fleet consisting of 380,000 vehicles is
in many ways similar to any fleet number with fewer zeroes.
It will be the integration process that will be the challenge –
although the challenge will be lessened with appropriate systems
implementation and close and ongoing contact with the client
base.
However, that significant number of lessees who did not pick the
new company as their first choice will need reassurance that their
concerns are being heeded.
Brian Rogerson
Timeline: Lloyds TSB Autolease
1959: Autolease is founded in Birmingham and
owned by
Bristol Street Motors.
1962: Automotive Contract Leasing (ACL) is
formed in Bristol. (This was purchased by the Julian Hodge Group in
1974, which was in turn acquired by Standard Chartered Group.)
1967: Motorent Ltd is formed in Stanmore.
1982: First National Vehicle Holdings (FNVH) is
founded as Elton Vehicle Contracts, a
subsidiary of Motor Group
(RRG Group).
1985: FNVH acquired by First National Bank.
1998: FNVH acquires Whitechapel Corporate
Services. It also purchases Fleet Management Services. ACL acquires
Motorent, which continues to run as a separate brand for the
small-fleet sector.ACL purchases Autolease Ltd.
2000: FNVH acquires Brooklyn Vehicle Contracts
and Perrys Vehicle Contracts, as well as Highway Vehicle Contracts.
Rebranding is completed and the newly expanded company trades as
ACL Autolease and ACL Motorent. September: Lloyds TSB Asset Finance
acquires ACL Autolease and ACL Motorent.
2001: Black Horse Vehicle Management is fully
integrated into Lloyds TSB Autolease.
2002: Lloyds TSB Asset Finance purchases
FNVH.
2003: FNVH is fully integrated into Lloyds TSB
Autolease.
2006: The company heads league of motor lessors
in the Sewells Fleet Contract Hire
survey, which measures service standards.
2007: The company wins Landmark Fleet Operator
Customer Satisfaction survey.
2008: Lloyds TSB Autolease wins £2.1 million
deal with RH Freight Services and £2.1 million contract with Morris
& Spottiswood. Fleet size: 129,000 vehicles.
Timeline: Lex
1959: Lex Service acquires British and Colonial
Motors, the UK importer for Chevrolet and
Pontiac. (Inside this company was a small business called Vehicle
Contracts that had innovated a new method for customers to acquire
cars – contract hire.)
1969: Lex Service (LS) purchases Controlled
Cost Motoring, based in Sale, Manchester.
1972: LS rebrands as Lex Vehicle Leasing
(LVL).
1980: LVL, with a fleet of 3,000 units, sets up
a joint venture with Lombard North Central, part of National
Westminster Bank. The venture means Lombard provides the funding
while LVL provides the management expertise. This partnership
proves extremely successful so, in 1983, LVL sets up Lombard
Contract Hire to sell contract hire through dealers to small
businesses.
1988: LVL acquires Fleetdrive, a public sector
contract-hire business running around 3,000 vehicles. This was the
last acquisition it made and, since then, it has grown
organically.
1989: LVL wins Fleet News Best Contract Hire
Company in the UK award (and again in 1993, 1997 and 1998).
1994: LVL launches Lex OneCall, a service for
company car drivers.
1996: With a fleet size now of 75,000, LVL wins
a solus five-year contract to supply 3,000 vehicles on contract to
the Royal Air Force.
1998: LVL is established as a 50/50 joint
venture between Halifax plc and RAC plc. This assures long-term
funding and new opportunities for product development and
growth.The company achieves ISO14001, an international standard
that recognises its commitment to resource management.
1999: Lombard Contract Hire changes its name to
Lex Vehicle Partners (LVP). LVP has developed partnerships with
distributors around the UK to meet the needs of small businesses.
LVL has a fleet totalling 90,000 vehicles and invests more than £12
million in new technology.
2000: LVL wins the Ministry of Defence White
Fleet contract for nearly 10,000 non-combat
vehicles. The company joins the international fleet alliance,
Global Fleet Services.
2005: LVL wins Best Leasing Company award from
Fleet Management and Best for Customer Satisfaction from apd
Landmark. It signs the HSBC Vehicle Finance contract, through which
the company’s fleet increases to 170,000 vehicles, making it the
largest UK motor lessor.
2006: Full ownership of LVL passes to HBOS from
Aviva, paving the way for a partnership with Bank of Scotland
Vehicle Finance (BoSVF). Company rebrands as Lex.
2007: Lex wins Best Leasing Company and Best
Fleet Management awards from BusinessCar magazine. The company
integrates with BoSVF.
2008: Fleet size, 251,000 vehicles.
