Hello, and welcome to wheel deals on a, I'm Nicola sniveling
and in this program, Real Deals takes a detailed dive into
asset-based. Lending.
I recently joined a group of lenders, advisors, and GPS on a
court. Take stock of where abl stood
after a year of covid. Disruption and to debate how a
BL has been used to fund New Deals and refinance existing
loans through the pandemic period.
The guests joining me for the discussion were Richard
babington from Mobius, Sarah, Dave, from, Hey, Potter, it
would Godfrey from DC advisory Jeremy Harrison from ABN.
Amro commercial finance and Oliver Jones from Rockland
partners. We kicked off discussion with
the look at the m&a market and hey, and how abl was used in m&a
scenarios during a period of uncertainty.
Jeremy Harrison at avian commercial Finance, gave his
perspective on mending in a volatile market, and explained
why abl lenders were able to deliver financing packages.
At PACE in, fast-moving deal processes.
There is no doubt MMA did reduce in terms of activity.
Last year. We saw that, but towards the end
of the year. And September October November.
We you know, we were in a competitive situation and
deliberately did delete deliver on time for an m&a deal with
with with a p firm who was very used to using a BL part of the
complaint in the past has been Canadians really move quick
enough to keep in time with an m&a process and I'm very firmly
of the view. And I have been for a number of
years that we can, obviously, we need the due diligence.
It's done on the collateral and that sometime is sometimes is is
where things can be slow. But now now we've got, you know,
independent firms that can be used that can get access that
can do things even remotely. Now, as we, as we seen in within
the last few months, so I think that ABO it has to be a serious
contender in MMA very much though.
And, you know, I can, I can show examples where we've done it.
And kept the deadlines, we have short lines of communication.
And if we really want to, and really need to, and really want
to work with particular p phone. Which of course, we would we can
deliver, and it's probably down to the lawyers then to help us
with the documentation DC advisory managing director,
Edward Godfrey, said familiarity with the abl products or a
vendor pushing for a br. As a credible option with a key
predictors of whether GP, would use abl to finance the deal more
sleepy. E firms, who are less familiar
with the product and for them. It's a more difficult challenge
to get over. But if we were a sell-side
situation with the vendor was absolutely pushing abl as a
credible option had laid the groundwork for a buyer.
I think that would be key for the less familiar buyers to
adopt a BL and it means a process can be more adapted to
suit an ABO lenders needs. Dla Piper partner, Sarah day
said abl with gained even more traction.
If asset surveys and valuations could be included in due
diligence processes as standard. I think it's behoves all of us
in the industry to be encouraging that because what
makes it difficult? I think, or perceived as
difficult. I think it really boils down to
two things. One is the need for evaluations
and surveys, understanding the assets.
Well, I mean, if we can just Just get it to be more normal.
That there is an element of asset DD done as part of a
vendor or process, or at least it's an option that can be
pulled down quite quickly. And if we can find other ways of
doing that, that as an issue goes away.
And again a lot of in some sense that recruitment a lot of the
assets of online. So it's quite an easy thing to
do. But what did the GPS think about
ABO rutland's? Oliver Jones said, understanding
the abl offer. Was crucial for dealmakers,
considering using the product. The key is understanding The
Rules of Engagement both from A lender and borrower, and if you
really understand how it works and understand this point around
the underlying asset is everything to these guys.
So the the key is understanding the quality of information
around that collateral how it gets police and reported.
And for me, most crucially how much Headroom you need to leave
as a borrower to deal with the what ifs Mobius is Richard,
babington said he was surprised AVL due diligence was cited as A
barrier to uptake at all. As all investors should be
asking for the same information as a matter.
Of course. I think the abl lenders are
unashamedly lending on the back of of assets.
So it's entirely reasonable that they should be able to see, you
know, an up-to-date age, debtor Leisure and up-to-date asset
register photos physical condition.
If it's manufacturing bit of Kit with you know, with a counter on
the side of it, to know what that looks like and a detailed
12 or 36 months cash flow to show how you paid off the debt
you take on. I think, I think if you've got a
business that can't show that, I'd say it's less the abl guys
issue and more your issue because it's the basics that I
think you should be looking at whenever you make an investment
and the sort of countenancing going into a deal without that
knowledge of, that kind of information is quite tricky.
I think on the other side, when we're trying to be competitive
in deals, there are people who just don't do that nowadays and
then it becomes a tough thing because certainly if you're
trying to engage the other side and say, you've got to go around
and count your widgets. And then someone else is not
saying that, then, that is tricky.
But to be honest, those guys in in the long run, we'll head for
a fall anyway, but I think a lot of the stuff that were asking
for people should people should be doing as a matter.
Of course, even that's just good business management.
Hey, B and M rows. Jeremy Harrison.
Agreed. I love ABO because what it does?
It gives me that view on the debtor book and the cash.
All the assets. Because if it's if it's if it's
other assets as well as a BL, I've got a good view of what
going on and I like the reporting actually because it's
a good discipline for the business.
Particularly when you've got a carve-out from a PLC who
probably haven't been used to cash constraints in the past.
So so or more and more businesses owned by pe were
where you're going to be much more focused on cash than if
you're part of a much bigger POC DC advisories Edward Godfrey,
said One silver lining to the disruption of the last year for
abl was that deal. Processes had slowed giving all
parties more time to understand the benefits ebl could bring to
the table. A lot of the are many processes
that are coming to Market. Tend to be a little bit more
difficult. They tend to be the not running
to the same aggressive timetables, on the halls.
There are maybe the year before and I think that creates a
little bit more room in the process to bring in more parties
to address the So, the of the buyer in that situation and in
my experience, over the last year of the situations are
appropriate, the tend to be much more collaborative between
buyer, buyer and seller. And I think that creates the
room that creates the opportunity for ebl to get the
audit done, for all the parties to get familiar with it and
creates a better chance, or maybe that's a foothold for the
years ahead of us conversation and then turn to refinancing
with rutland's Oliver Jones explaining.
Why launch Term relationships with lenders had proven
invaluable through the disruption of the last 12 months
for would have to be a really good reason to want to refinance
away from people who have supported you in the bad times.
And then the whole reason having that long, long term mindset is
for precisely the reason why things like this year, when the
unexpected happens, you're not quite sure if, if it's a sort of
syndicated loan, that's going to different places and you don't
know who your counterparty is. It gets a lot more challenging
and dla Piper Serie de however. Said, she had been surprised by
the number of borrowers that had refinanced with new lenders and
outline. One example of a borrower
switching from a syndicated credit.
Revolver to an AVL facility resource.
We did see a surprising number of refinancings in the sense of
re banking's or moving from One financial institution to another
to walk, but not in that first flush, but towards that sort of,
you know, the back end of locked and one and that was driven
partly by exactly what you were. NG at the beginning of lockdown
one, which other people just feeling unloved and I was
surprised because normally in a troubled Market you better the
devil, you know, but actually people were saying I wasn't
either troubled enough or big enough to get any attention and
I just wanted to move to I had an approach from another fund
354. A PLC from a syndicated large RC
F onto a an AVL line precisely for that reason.
And once you start it, A mainstream in that sense.
And once you start each, it only takes one positive experience
for each debt. Advisor Wang positive,
experience for a PE house and you begin to get that mindset
change. Finally conversation turned to
remote working and how a blsm d and workers had adapted to
restrictions on travel and meetings Mobius is Richard.
Babbington. Sid remote working had its
upsides, but that there was no substitute for being on site.
Right Richard babbington with the final word, still think you
want to be physically seeing things.
It's sort of scares the Vegeta you when someone pops and pit of
PR PR up and they said we did all this virtually without
seeing the business, you know, all the houses, look great on
right move. But it's only when you go from
door with you find out whether it smells of cigarettes or not.
So we still wanted to go and physically on site for the sniff
test, but to the extent, we can blend, you know, can blend the
two working virtually can be quite efficient, but I still
want people going on site and looking looking.
Under the table.