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.
Large leasing brokers that have been sold
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.
Who will buy a small leasing broker?
Firstly, I do not intent to be rude 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.
What is the value of a leasing broker?
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:
- Client portfolio
- Supplier relationships
- Funder relationships
- End of term income
Let’s look at these in more detail.
Client portfolio – 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.
Employees – 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.
New Supplier relationships – 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.
Funder relationships – 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.
End of term income – 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.
Valuing a broker at zero
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.
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.