The leasing deal market will pick up the pace in 2015

UK’s SME leasing market is seeing an increasing number of private equity (PE) players jumping into the market.



Manisha Jha

Manisha Jha

New Blood Journalism Intern at The Leasing Foundation
Manisha has seven years’ experience in financial journalism in Mumbai, New Delhi and Chennai writing for The Hindu, Asian Age and the Hindu Businessline. She received the Marjorie Deane Financial Journalism Scholarship from the Economist, and was selected for a IMF/Thompson Reuters workshop on economic reporting. Manisha has reported on markets, M&A, investment banking, property, IT and banking, all using social media and web tools to research and break market-moving stories.
Manisha Jha

Introduction from Editor PETER THOMAS

In January 2015 we appointed Manisha Jha, City University postgraduate student Manisha Jha (uk.linkedin.com/in/jhamanisha) as the inaugural New Blood Asset Finance Journalism Intern. 

The Leasing Foundation New Blood Asset Finance Journalism Internship is intended to start a wave of professional journalists working to keep the world informed, educated and aware of the financing landscape. The focus is on modern, online, data-driven, meticulously-researched, insight-based and impactful journalism in leasing and asset finance. The aim of the programme, funded by Roger Skinner, CEO of Maxxia, is to support emerging young, technology-oriented, well-informed journalists like Manisha who will create stories about the industry that will be read by global audiences beyond the industry itself. Manisha will learn directly from the experts, write stories that inform and educate about the leasing and asset finance landscape and so help us accurately frame public and political debate.

Roger Skinner, Maxxia’s CEO, says “The Maxxia business approach is based on transparency, collaboration, trust and building real relationships. I want to ensure that these values, and the great contribution that the leasing and asset finance industry can and does make to supporting economic growth, is reported accurately, intelligently and with real purpose so that all businesses and communities gain a greater understanding of the role that the industry plays. The New Blood Internship is our way of doing that.”

Manisha has seven years’ experience in financial journalism in Mumbai, New Delhi and Chennai writing for The Hindu, Asian Age and the Hindu Businessline. She received the Marjorie Deane Financial Journalism Scholarship from the Economist, and was selected for a IMF/Thompson Reuters workshop on economic reporting. Manisha has reported on markets, M&A, investment banking, property, IT and banking, all using social media and web tools to research and break market-moving stories.

This is one of a series of stories that Manisha is creating in collaboration with the Leasing Foundation Fellows, Governors and other industry experts, that explore the changing landscape of leasing and asset finance. Please read her work, and contact Manisha with other stories that she might work on at manisha.jha@leasingfoundation.org

Who should be interested in this? Anyone interested in current developments in the leasing and asset finance industry.

 

The leasing deal market will pick up the pace in 2015

UK’s SME leasing market is seeing an increasing number of private equity (PE) players jumping into the market after identifying lucrative business opportunities in this rapidly evolving industry.

A case in point is Cabot Square Capital’s acquisition of Leasedirect Finance and Henry Howard Finance, a SME business with a small leasing book, and Star Capital acquiring Kennet Equipment Leasing.

The typical strategy of the PE houses has been to either acquire lending businesses or buy brokers or businesses with distribution capability and then create a lending business out of it.

According to the Private Equity Insight report by Grant Thornton, last year brought a marked increase in investment in leasing, asset and consumer finance spanning across equity and debt with a particular focus on financial providers to the SME market.

“With the improving outlook and continued pressure to support smaller businesses across the UK, we expect 2015 will bring more activity in this market,” the report noted.

Private Equity and the expansion of leasing – a greater appetite for acquisitions

Tarun Mistry, Head of Financial Services at advisers Grant Thornton, says there has been significant investment into the UK asset finance market in 2014 where PE firms invest in finance providers, allowing these companies to raise debt facilities to fund expected growth.

This trend has emerged alongside the expansion of the scope of the leasing sector to go beyond leasing against assets to building a variety of lending products that meet market demands.

“There is a greater appetite for acquisitions as both new and existing players are looking to acquire businesses with different product ranges, lending appetites, asset focus or distribution volume,” Mistry says.

Most of these acquisitions focus on establishment of new areas of business or growth of volumes in existing business, such as Investec which wanted to enter the retail brokerage space and did so by acquiring Mann Island Finance.

The multiples being paid to acquire these businesses are also increasing on the back of improved demand and lessening of distressed sales in the market versus strategic sales post the financial crisis. Improved access to debt is also impacting valuation multiples.

No shortage of funds

So what is driving these PE investments into the sector? Chairman of Star Asset Finance, Sam Geneen believes one factor is that the values attributed to finance businesses or challenger banks are high as they can produce a regular flow of profits with an acceptable risk profile.

“In today’s markets, it's not easy to find homes for cash, and there's no shortage of funds looking for homes. So capital growth has been achievable over a relatively short period of time,” he added.

According to Tarun Mistry, increasing knowledge and awareness of the asset finance market, growth in demand for this finance product and the general trend of margins remaining stable and healthy have also helped. In addition the impact or forecast impact of regulatory burden is driving certain transactions.

“The portfolio performance of new businesses have been better than expected post crisis and increasing availability of debt in the market has also attracted new entrants,” says Mistry.

These new entrants include those in the automotive finance industry, such as HG Capital, and players in other asset finance industries such as Pollen Street Capital, Star Capital and Cabot Square Capital.

 The Automotive sector leads the growth in asset finance

“The automotive finance sector is of particular interest to PE and debt providers because of the high penetration of finance with this asset class and the assets' resale liquidity” says Tarun Mistry.

According to Geneen, the key to a successful investment is ensuring that the management's interests are aligned to the shareholders. Therefore any structure which gives management an incentive for increasing value over the medium term should work.

“At Star, we structure the acquisition by agreeing an initial consideration, an earn out based on profitability over an agreed period, and for the management to invest in the holding company so that our interests are aligned,” he added.

“With the British economy doing well and expected to continue doing so, combined with forecast low interest rates, the demand for asset finance and consumer lending is likely to continue,” says Geneen.

CC BY 4.0 The leasing deal market will pick up the pace in 2015 by Manisha Jha is licensed under a Creative Commons Attribution 4.0 International License.