Uncharted waters

Private equity houses have traditionally steered clear of asset-based finance, but that could be changing.


Private equity houses have traditionally steered clear of asset-based finance, but that could be changing.

Private equity houses have traditionally steered clear of asset-based finance, but that could be changing.

Asset-based lending (ABL) is becoming a more attractive proposition for private equity houses as a way of getting deals done, according to Piers Harmer, business development director at Lloyds TSB Commercial Finance (LTSBCF).

ABL allows businesses to leverage both their current and fixed assets – including receivables, stock, plant and machinery, and property – and is increasingly being used by corporates at all levels to boost working capital and release funds for expansion.

Harmer explains that LTSBCF has been working with companies in a number of different sectors in recent years, namely the mid-market and US private equity market. ‘A lot of US houses that invest in Europe don’t have direct access to working capital finance,’ he says.

‘The big benefit for all the companies at the moment is that the cost of funds is low. That’s an unusual feature against historic recessions.’

‘Well managed companies in resilient sectors with sound strategies are actually coming through this process much stronger. These are becoming targets for private equity-backed buyouts and other M&A activity.’

Harmer adds, ‘I think we are still in the consolidation phase – the process of companies working out the most suitable form of funding to facilitate growth during the economic recovery.’ He believes that businesses that have weathered the downturn are in a much better situation to deal with problems than businesses in previous financial crises.

‘The big benefit for all the companies at the moment is that the cost of funds is low. That’s an unusual feature against historic recessions,’ he says.

Chris Hart, director of international sales at LTSBCF, is optimistic about growth possibilities for ABL in 2011. ‘ABL levels have just reached where they were before the recession. It’s going to be an interesting year to see whether that number increases significantly,’ he adds.

Harmer chimes in, ‘It is our mission to educate the market: what ABL is, why it works and the benefits.’

On a cross-border level, LTSBCF hopes that the deals it has supported over the past few years, such as the recent refinancing of global packaging company Chesapeake, will give companies the confidence to ask for funding for assets in countries other than the UK.

Hart comments: ‘We’ve demonstrated clearly that we can do this, but I still think there is some scepticism out there over what is really possible. I’d like to see more people coming to ask the question.’

Chris Hart
Director of International Sales
Lloyds TSB Commercial Finance
Tel: 07525 240 139
Email: chris.hart@ltsbcf.co.uk

Piers Harmer
Business Development Director
Lloyds TSB Commercial Finance
Tel: 07971 408 513
Email: piers.harmer@ltsbcf.co.uk

Nick Britton

Lexus Ernser

Nick was the Managing Editor for growthbusiness.co.uk when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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