More invoice financing rebranding?

News reaches me of another major rebrand within the asset finance sector. Not saying who just yet and will be fairly careful with my response following a somewhat hysterical (and telling) reaction from one particular lender’s marketing team following my criticism of a what virtually everyone acknowledges was a bizarre rebrand. A re brand where very strong positive identity was both replaced and overlooked with a name that seemed to have been culled from a list of unpleasant medical viruses

In addition another rebrand at a smaller lender left us with a name so bland that they just slip out of consciousness.

As for the forthcoming example, I can perhaps see the justification given that their current branding is perhaps a little dated now given their development. I will of course pass judgement when all is revealed because frankly we as brokers, are in a position to do so.

“Too good to be true”

A well known quote which relates to so much in finance and not just crypto and Ponzi schemes. As we are seeing right now, its a quote that simply doesn’t date

Economists can be very quotable and one of my favourites is Keynes “when the facts change, I change my mind. What do you do sir?” That is a quote that might be regularly applied in this current volatile world we inhabit

But a new favourite of mine is quoted in Chris Patten’s superb biography (and I attended a most riveting talk by the great man last night). Its from the American economist Herb Stein and its simple but perfect

“things that cant go on for ever, don’t”

Another lender ditches invoice financing

Unfortunately I cannot say who they are just in case the rumours are untrue but I gather that the redundancies have already taken place.

To give a clue, they are certainly at the premium end of the market and insiders there told me that they were writing virtually no business anyway. The lender had a reputation as a very difficult place to work and the turnover of staff was pretty clear evidence of that.

They hadn’t won business with any of my clients and | simply found them to be an odd mix of caution, high costs and tough contracts and guarantees. I suspect their book of lending is pretty small

The question will be whether this is a trend? That came up when Siemens surprisingly exited the market a year or so ago and the fact was that it signalled little at the time and I suspect this will be the same. There are actually new entrants in the market although my experience of one in particular has been very negative.

Lenders will come and go but there will be a period when they are going to have to ride out a slow market. Businesses are not expanding and start ups must surely be low. Although some lenders are replying largely on demand once the government lending peters out, I believe that they may well be over optimistic.

Crypto. Who cares?

It might appear strange to write about about a subject which holds no interest for me but there is a an underlying lesson which, in fairness, I would assume that most sane people fully understand anyway

This weeks Crypto exchange collapse has rightly largely been met with a shrug of the shoulders and little sympathy for the “investors”. Why? Because it comes down to the old saying which time and again proves to be entirely correct

If it looks to good to be true then it is too good to be true

But time and again we are seeing these quasi ponzi schemes where lazy investors are sucked in on the promise of guaranteed returns which are nonsensical.

I have no sympathy at all but two outcomes from this weeks collapse could be very posituve

On a micro level, we will not have to endure mind numbingly boring presentations at networking events on Bitcoin etc. On a macro level, this should encourage those who have taken unwarranted risks to look again at what they have got themselves into and this will almost certainly trigger more collapses of these ridiculous house of cards

Growth without workers?

This week I heard a familiar tale. Yet again an SME business owner has felt obliged to run down his green energy enterprise (which was certainly successful) because he simply could not find the staff. And whilst many will retort that this can be rectified by “paying more”, the impression was clear that it was availability rather than cost. We are hearing this time and again and even just a walk down the high street will give clear indications of the current state of play. Virtually every bar or restaurant is advertising for staff

This blog tries to avoid the nakedly political and on the issue of Brexit, I had a nuanced view, but clearly matters are getting out of hand

So whilst I will avoid being directly political, I think we can all agree that we have the most incompetent and simply plain ridiculous senior minister in living memory in the low wattage form of the Home Secretary

Why do I say that? Because quite simply she’s bone headedly bowing to a shrinking ageing bigoted constituency and at the same time weakening the case for brexit and growth. This from someone who shrieks about “anti growth coalitions”. The case for Brexit also has to be on going and currently its failing because the salient issues are not being addressed.

This isn’t a question of mainstream left and right politics but of competence

Businesses cannot grow if they cannot fill jobs. That isn’t an economic theory but a simple fact. The Home Secretary has routinely pushed back against her own leadership on the issue of any level of immigration even where there is a screaming need for staff

And there is another issue here for those that voted for Brexit. How is it going to work when the resultant lack of growth, lack of essential staff (NHS) and decaying services is exacerbated by this stance?

The fact is that for business owners, Brexit is not working. In addition to the recruitment issues, the whole business of trading is, of course, more and more difficult. Brexit was not simply about SMEs but with polls demonstrating growing an increasing public appetite for closer links with the EU, the case for a return to the single market is gathering steam.

Personally I believe that a return with Freedom of Movement will be in place in the not too distant future. And maybe rightly so

Horrifying lending

I am currently working with some experienced and well versed investors looking to take over a struggling business which is being dragged down by its borrowing commitments. Its all very discreet of course so naturally I will not spell out too many details but i’ve had an interesting time analysing the loans

Virtually all were expensive and one recent commitment was for £50k at an APR of over 40%. Nasty

But thats not the end of it. One fairly well known lender was an agreement with a rate of 5.3%. Pretty good at first glance you may think and at around £200k the loan is substantial for the lender and also for a client of this size

One problem

The interest rate of 5.3% is monthly

Dangerous “know it all” advice

A very good client of mine is seeking to purchase a business in the engineering sector. We’ve looked closely as a small number of targets and one in particular currently ticking a number of boxes. On the basis of a number of factors including my client’s experience and the potential of the business as well as its well established profitable record, this is an arrangement that should suit all parties, not least because the client is eager to move on

My role is to source the finance of course but that is driven by the price and the ‘initial consideration’ and this where we hit a stumbling block

We confident we can raise a substantial sum but the seller is being advised by his accountant on the sale who is advising that the pricing should be seven times EBITDA plus net assets.

That multiple is a familiar one but only in the corporate world. In fact it is seen as a benchmark in that environment which generates the suspicion that the accountants valuation is based on nothing more than a textbook.

Seven times EBITDA would clearly mean that my client would have to run the business for seven years before seeing even a limited return. Corporates can take that view. They are frequently buying for longer term strategic aims. SMEs do not have that luxury

This is a good business so the multiple can be justified at the usual upper end of the scale (my view is around four times) but this is ‘advice’ which is no use to anyone.

To top it up the accountant has stated to the seller that he could “easily find” a number of buyers prepared to pay “seven times EBITDA” further illustrating is gross ignorance. Finding a “number of buyers” at any price is difficult enough let alone when the quoted price is grossly inflated.

There is also a suspicion here that he’s pushing the seller towards brokers who will demand substantial upfront fees.

My response to that would have been quite blunt but he deserves his chance

“Two weeks to get these buyers in front of me or you are no longer my accountant. And no nutters, time-wasters. And no im not signing up with a broker. OK?”

Then with this accountant out of the picture, the real business can begin