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Comment july 7/18/08 2:55 PM Page 1COMMENTASSET FINANCENothing ventured, nothing gained – the appeal of assetfinance to investorsNow’s the time to source investment, although private equity has risksDerek Soper early stage of development that have perceived The investor almost certainly will require along-term growth potential; to develop new seat on the board, usually as a non-executiveAsset finance companies that require products, services and technologies; to expand director, or even as chairman.additional funding will probably be working capital; to make acquisitions; or to Investors focus on the prospect of aconsidering the desirability and feasibility of strengthen a balance sheet. significant financial gain.The potential exitattracting external investment. If so, they value of a company is a vital part of thewill have to decide whether it is better to investors’ thinking.They will be keen to“Investors focus on the prospect of aown a smaller slice of a potentially larger know where the probable exit route will liesignificant financial gain. Thepie, or lack funds and slow down their even before the investment has been made.potential exit value of a company is abusiness while continuing to own a large The company’s management should notvital part of the investors’ thinking.”share of the business. assume that their exit will coincide with thatThe asset finance industry appeals to of their investor.investors because of its regular and An important ...

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ASSET FINANCE Nothing ventured,nothing gained – the appeal of asset finance to investors Now’s the time to source investment, although private equity has risks Derek Soper early stage of development that have perceivedThe investor almost certainly will require a long-term growth potential; to develop newseat on the board, usually as a non-executive Asset finance companies that requireproducts, services and technologies; to expanddirector, or even as chairman. additional funding will probably beworking capital; to make acquisitions; or toInvestors focus on the prospect of a considering the desirability and feasibility ofstrengthen a balance sheet.significant financial gain.The potential exit attracting external investment. If so, theyvalue of a company is a vital part of the will have to decide whether it is better to “Investors focus on the prospect of a investors’ thinking.They will be keen to own a smaller slice of a potentially larger know where the probable exit route will lie significant financial gain.The pie, or lack funds and slow down theireven before the investment has been made. potential exit value of a company is a business while continuing to own a largeThe company’s management should not vital part of the investors’ thinking.” share of the business.assume that their exit will coincide with that The asset finance industry appeals toof their investor. investors because of its regular andAn important part of investors’ strategyMost exits are realised through a trade predictable cash flows, strong cashmight be to leverage investments bysale to another company, which often brings generation, and the availability of assets tosupplementing the equity investment with a higher valuation than a full stock market serve as collateral.There is often also, ofdebt which can be repaid over time. Debtquotation.This is because the acquirer needs course, the opportunity to leverage theproviders will be looking for strong assetthe company to supplement its business customer base by offering additionalbacking, or significant opportunities toactivities.The exit may be by re-financing value-added products and services.generate cash.An asset finance company willthe investment by another institution. It Many equipment-related companies arehave to show that it has a strong, or potentiallycould be by seeking a listing of the shares on cyclical, and this is an importantstrong, competitive ranking in the market.an exchange. Or, it could be by a consideration for opportunistic investors.management buyout. They may look to make their investment at Management The exit strategy must be underpinned by the bottom of a cycle and hope to exit nearIn order to attract investment the asseta quality book, and the company must be the top.This should be borne in mind in thefinance company must have high-qualityprofessionally managed with efficient context of the economic climate and newmanagement. It must offer the investor thesystems. Aninvestor will want an ongoing business trends in the asset finance industry.possibility of a high return on its financialsustainable source of funding to be available Smaller asset finance companies provide theoutlay, and the investor must be able to see ain the immediate post-exit years. opportunity for investors to consider aclear exit strategy.Raising equity finance is demanding, strategy of expansion and possible Investors invest in people – people who costly and time-consuming.The company’s consolidation. However, it has to be perceivedhave run, or are likely to run, successful business may suffer because significant time by the investor that there are considerablebusinesses.They look for a high-quality,will need to be devoted to securing the deal. opportunities for the company to grow.experienced and ambitious managementPotential investors will closely scrutinise the team with a realistic plan to grow thecompany’s past, current and prospective “The asset finance industry appeals business. Aperformance and its management. It may becapable, committed and balanced management team brings significantbeneficial to approach potential investors to investors because of its regular credibility to the company.through a professional adviser who has and predictable cash flows, strong The prospects for decent returns, and the previously worked with the firms, and cash generation, and the availability risks associated with achieving the investor’s often, more importantly, with some or all of of assets to serve as collateral.” goal, are critical factors. In common withthe management team. the company’s management, investors have aInvestment deals can fall at the last hurdle. The possibility of residual value exposurevested interest in the company’s success –This may be because there is a failure to might be a concern, but investors are likelygrowth, profitability and increased value.agree a price or other important terms. Or, to be reassured if the company has in-depthInvestors must be assured that the companythe company’s trading performance may asset knowledge and risk managementwill generate sustainable and predictable have declined markedly during the expertise, or has acquired it by means of acash flow and, if not already profitable, will negotiating process. Or, in recent times, due quality outsourcing arrangement.be in the black in the short term.to the lack of confidence in the market. The private equity and venture capitalThe non-financial input by investors isThe rewards for the asset finance industries have a proven track record ofalso very important, such as guidance oncompany and the investor are directly linked contributing to economic growth and jobstrategy and operations, and the ability toto the value that is created. It is in the creation.The industry provides a vital sourcetap into their specialist experience ofinterests of both parties to work in of investment to companies at all stagesassisting companies at a time of rapidpartnership to strive for mutual success. of development.development and growth.The level of Funding can be sought for a variety ofsupport may be‘hands-on’ or ‘hands-off’, orThe Alta Group,The author is chairman of reasons: to fund start-ups and companies at ansomewhere between these two extremes.‘Advisors to the Asset Finance Industry’❙

Only one consultancy focuses exclusively on the global equipment leasing and asset finance industry. Only one consultancy has the global experience to understand today’s asset finance chal- lenges, industrywide. Alta – Advisors to the world’s top lessors