It is a question I often get asked on a regular basis, how do you value a leasing broker? For the sake of this blog, I am just going to focus on leasing brokers with less than twenty employees.
Many of the UK’s largest leasing brokers have sold out over the years. Wyse Leasing, Syscap, Henry Howard, Kennett, Premier Asset Finance, Lease Direct Finance are just a few of the well-known names.
Selling a large leasing broker is a totally different project to selling a smaller broker with under twenty staff. The main difference being who will be the acquirer? With larger brokers, the target purchaser is a funder or private equity house. Leasing funders and private equity players are often not interested in smaller leasing companies.
Firstly, I do not intend to be of offense to the hundreds of hard-working, successful leasing brokers business owners up and down the UK by calling your business “small.” I only use this word to differentiate your business when looking at who an acquirer would be.
Let us look at some key points:
What is the sector you are involved in and do you have a speciality?
A leasing company just doing HGV vehicle leasing was sold to a vehicle insurance company.
A company focusing on professions loans was sold to Syscap, another leasing broker in that space.
A telco leasing company could be sold to a telco supplier. Same applies to IT or office furniture.
It may be a large office equipment supplier or manufacturer would buy your leasing broker to provide them with the infrastructure as opposed to setting up a leasing company from scratch.
A high net worth individual looking to invest his funds in an own book position.
And then there is the obvious answer…another larger leasing company!
In summary to who will buy a leasing broker, sometimes the answer is not as obvious as you think it will be.
When we sold Wyse Leasing many years ago, the value was mainly calculated as a net present value of the end of term income and then an additional small sum for the brand, which was quickly ditched by the way! An interesting point here, we worked really hard over many years investing into brand development thinking this investment will only improve the value of the company. Take a look at all the brokers who have been sold. Wyse Leasing, Syscap, Henry Howard are just a few well known leasing brands where the company name has been dropped.
More recently, buyers have been valuing business on volume of business written. The more deals done, the more money lent, the higher the value. This is great if you are a funder looking to acquire. The maths is quite simple, XYZ Leasing company lent £50m at 8%, our cost of funds (as the buyer) are 5%, hence we will automatically put on £50m more volume at an additional 3%.
For us, we will look at five key elements:
Let’s look at these in more detail.
How many clients? What sectors, What size of company? Where are they located? What equipment have they financed?
How often have they been called? Was a welcome pack sent out? How much bad debt is there? How many clients have taken payment holidays?
Is there a CRM system in place? Is the data quality high? Does every client have their registration number? Website address? Full contact details?
At WestWon, we have analysed out the lifetime value of a client using averages to work out how many companies repeat order and what on average is the true profit per deal written. Can you do the same?
Sadly, nearly all brokers I speak to do not know the value of a client and do not have a process of keeping in touch with them other than a monthly email.
How many? Where are they located? How easy/expensive will it be to exit people? Are there great people you can promote? Are there any key salespeople? Have you got all the personnel records? What has been the staff turnover?
What about self-employed salespeople, consultants commission only etc?
Your team has a value, finding good people is hard. I would put a value on each member of staff and then reduce this by any potential liability.
Be careful, just because you have an amazing supplier relationship does not mean they will stay should you leave, sell up, retire. I have seen this far too many times when we buy a great business based on a supplier relationship only to see circumstances change when a deal is done to buy/sell a company.
Saying that, good quality supplier relationships will bring in future business.
Is there a funder you do not presently deal with? If so, who are they and will they add value in your business?
Many years ago, when Wyse Leasing was doing about £5m per year of leasing business with Siemens Financial Services, we bought a small broker who was doing £1m per year with them. This broker was getting better rates than us. We brought this to the attention of the funder, and they reduced our rates, the extra profit paid for the acquisition.
This is the real annuity stream. End of term income, being a share of secondary rentals or title in equipment is real future profit.
If you only do business loans, car finance or hire purchase deals, there is no end of term income. This makes it significantly harder to put a value on your company.
I spoke to one broker who was looking to retire. He had 400 clients that did repeat order, all on hire purchase agreements. There was only one employee and he was looking to retire.
Clearly, he had fantastic relationships with some of his clients but in the end, I could not put any meaningful value on his company.
We look at the five key points above and drill down into the business seeing where the worth is. For us, top dollar is paid when we can see an end of lease base with funders we know well. Here, we can net present value the future revenue streams and pay a meaningful price.
Author
Jeremy Hall, CEO of WestWon Limited. For further information, help, assistance, or a chat if you are looking to sell your leasing brokerage, please call me for a confidential conversation.
WestWon are pleased to announce the acquisition of First Leasing UK Limited.
Not to be confused with, First Vehicle Leasing, 1st Leasing or First Leasing Software – companies with a similar name – First Leasing UK Limited was set up in 2002 by Paul Connell.
First Leasing is a leasing and asset finance broker and works with a range of well-known funders in the UK. The company does not have an own book position.
The company has a range of business loan clients and recently completed a number of CBILS loans. The majority of the client base are for companies who have leased equipment.
Speaking on behalf of WestWon, CEO Jeremy Hall noted, “We very much appreciate Paul Connell selling us his business and trusting us to look after his existing client base. Over time, we will be contacting all of their clients to introduce ourselves and to start the process of developing a longer-term relationship with them to act as their leasing company.”
First Leasing is the fourth acquisition by Jeremy Hall / WestWon this year. With regards to First leasing, in client numbers terms, this was a modest acquisition adding a few hundred customers onto what is a growing client base.
George Shillingford who is heading up the project internally at WestWon was pleased to add, “We are enthusiastic about buying either a leasing company or the IP (mainly the client base). In the case of First Leasing UK Limited, we acquired the company. We do have a specific use for this business going forward.”
We acquire leasing companies for five reasons:
George further noted” Every acquisition is different. In the case of First Leasing, we have satisfied three of the five criteria, the company does not have incumbent staff that are staying with the business or providing funder relationships we were not already trading with.
Our primary aim is to build our end user client base. We know from over thirty years of leasing and asset finance it is ten times easier to sell back into an existing client than find a new one by cold calling. It is not just that you are a known entity, but a trusted name. It is down to the culture of the client’s business and their perception to how their business should and can be funded.”
We thank Paul Connell again for the opportunity and look forward to working with First Leasing clients and suppliers.
Should you be a leasing broker that is looking to sell your business, please contact George Shillingford at WestWon for a confidential conversation on 01494 611 456.
Lease payment holiday requests in the UK Over the 30 years we have been arranging leasing and asset finance for 25,000 plus organisations, we typically only see a handful of companies every year asking for a lease payment holiday. Since the outbreak of COVID-19 in the UK, we have seen more businesses applying for a […]
From conversations we have held, many SME companies who have undertaken a lease via WestWon have confirmed to us they have taken out either a Bounce Back or CBILS Loan. A number of these business owners have directly asked us asked the question, “Will my Bounce Back Loan (or CBILS Loan) affect our ability to obtain lease and asset finance in the future?”
The implications of a Bounce Back Loan on your balance sheet
Let us firstly look at the financial implications on your company balance sheet. (We have assumed you have taken out the maximum loan allowable under the Bounce Back scheme of £50,000.)
You have created a current asset, cash of £50,000. Likewise, you have added a long-term current liability of £50,000. We say a “long term liability” as the loan facility repayments will start in twelve months. Hence your Net Current Assets position will remain unchanged.
Bounce Back loans being an insurance policy or used to reduce existing debt
Quite a few companies we have spoken to have taken a Bounce Back Loan as an insurance policy. They have put this money aside and presently are not using it to fund the business. This makes financial sense and is a prudent thing to do.
Likewise, there are company directors who have used a Bounce Back Loan to clear off an existing company overdraft or to reduce an existing bank loan. Again, there is a clear financial benefit here, you are clearing historic debt down almost certainly at a higher interest rate. In the background, we know that people are using the Bounce Back Loan facility to get out of banking agreements where they have a personal guarantee.
From the perspective of obtaining a new lease, the two options above would not have any impact on your future ability to obtain lease finance.
Using a Bounce Back Loan to invest in your business
We have spoken to other companies using a loan to put down as a deposit on a commercial vehicle. Another company has used a CBILS loan to pay a rental deposit on a new building. Others have used it to buy stock or build a new website.
These are all legitimate uses for the Government backed loan and will not affect your ability to raise new leasing and asset finance in the future. However, we would like to add, we must tell the underwriter:
Using the loan to tide you over whilst business income has been reduced
Most companies are using the loan to help cash flow whilst sales and profit are down, again a legitimate and sensible use of the facility.
Leasing companies must lend to stay in business. If they do not lend, then ultimately, they will look to reduce costs and “wind down their lease portfolio.” The job of their underwriters is to look at all prospects customers and ask themselves one simple question, “Will this company be able to afford to make the 36/60 monthly repayments and will they still be in business at the end of the lease term?”
To make their task easier, underwriters now require most lease proposal forms to have a COVID-19 attachment. This is a one-page document that we can help you fill in. Its primary purpose is to illustrate what steps you have taken to keep trading and how the pandemic has affected your business.
So, going back to our original question using this example, will a Bounce Back Loan or CBILS Loan affect my ability to obtain leasing finance? We would say no. However, there is a big caveat here, our job is to positively explain why you have taken out the loan and more importantly, what steps have been taken to protect your business.
Summary
There are many different reasons for taking advance of a government backed loan, some positive and others negative.
All underwriters will take into account the effects on a company’s longer-term cash flow when they have to start paying back a Bounce Back or CBILS loan. Also, not forgetting how COVID-19 has affected the business.
With most new lease proposals, we will look to ask a number of questions around the impact of COVID-19 on your business and if / why you have taken a loan out.
Our job is to arrange finance for your company, our doors have always been open for business so if you have taken out a loan, please feel free to call us for all your leasing needs.
The market for garden and home offices has exploded since March. One supplier we have just spoken to has stopped all advertising, they cannot keep up with demand and are busily recruiting new installers.
Garden office pods – as these home offices are typically referred to – is the latest must have for business owners. Even though available on Google from £3,000.00 + VAT, many business owners are spending between £20,000 and £40,000, and some buildings costing as much as £75,000. Kitchens, bathrooms, a meeting room and office space are a prerequisite for companies with a small team of people.
Who pays? – is this an asset financed in a personal capacity or paid for by a company? It seems that there is a mixture of both. Buying in a company name is a legitimate business expense, even though they are located at the home of the business owner.
How? – Individuals and companies have been paying for garden office pods as a cash purchase.
However, things are changing. It is now possible to lease a garden office pod for business use. There are some really good benefits to this:
The key issue why companies are not looking at a garden office is normally due to the fact they cannot fund the £10,000 to £75,000 cost out of cash flow. Leasing overcomes this issue.
As an example, a £25,000+VAT building would cost about £550 +VAT per month over five years. Significantly less than paying a third-party company rent, rates and service charges, as well as time and travel expenses. The fact that all companies will look to take ownership at the end of the lease period is a key factor.
No, leasing is only available to companies. Private individuals would have to use their own money or take out a personal loan / extension to a mortgage.
Yes, we are leasing office pods to companies where the director(s) wish to work from home a few days per week.
You choose the supplier and office pod design.
You would still need to ensure you have all the correct planning applications – if appropriate – in place. It may be such there are restrictions on you or your colleagues working from the home environment.
We then take the supplier quote and will provide you with a leasing quote.
We arrange for the leasing credit to be put in place and send you lease paperwork.
The supplier then installs the building, they will require a deposit which will be refunded to you when the lease agreement goes live at the point of completion.
Our funder will pay the supplier invoice and then you make a regular monthly lease repayment, normally over three to five years depending on your budget.
Overall, it is a very simple process.
We do. Please call WestWon on 01494 611 456 for more information and a formal lease quote.
Listen and watch our very own Richard Porter, Divisional Director of the Professions sector being interviewed by Nicki Rowland from Leadership in Dentistry. During the interview Richard discusses the new Dental Finance App, the WestWon Bounce Back loan along with the new supplier App, Partner Portal and all things dental!
The interview is ready to be viewed in full here: https://vimeo.com/450047530
WestWon continues to support the dental sector, and due to the good work and its unique approach has been recognised by several dental groups. The interview follows our exciting announcement last week of our partnership with The Association of Dental Administrators and Managers (ADAM).
For more information on our Dental Finance offering, please speak to a member of our team on 01494 611 456.
A recent update was provided by Rishi Sunak, who announced a further series of changes to the Government’s furlough scheme. In what has been seen as a surprising, but welcoming announcement including workers being able to go back part-time from July. Here’s what you need to know: As of Wednesday 1st July, all businesses using the Government’s furlough scheme will be able to bring back furloughed employees part-time and […]
UK dentists apply for lease holidays in numbers With dental practices across the UK unable to open and therefore not able to generate income, many UK dentists have applied for a six month holiday period on equipment leases and practice loans. In this blog we look to explain what is happening in the UK leasing […]
Bounce back loans for dentists Following several months of closure, it has been a difficult time for dental practices across the UK. However, there seems to be light at the end of the tunnel. We wanted to look into ways we can support you and as a result have launched our ‘Bounce back loans for […]
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