Sunset over ocean

Vendor finance might be a ‘dark art’,
with little or no official information on its scale or penetration
across Europe, but it remains – for most participants – a
profitable space to be in. In a special report, Leasing
looks at some of Europe’s largest vendor finance
programmes, and discovers where it is working – and where it is


A glance at recent developments in leasing
suggest that, despite the recession, vendor finance is

This is perhaps best reflected in the vying
that recently took place between Europe’s three leading lessors (SG
Equipment Finance, De Lage Landen and BNP Paribas Lease Group) to
win a slice of Microsoft Financing’s vendor programme.

In doing so, all three appeared to be
sufficiently attracted to the software giant’s business, and
ultimately to vendor finance generally, to overlook general
liquidity shortages.

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By GlobalData

Of the three, BNP Paribas Lease Group, fresh
from its merger with Fortis Lease Group, has been particularly
vocal recently about its own ambitions to expand its vendor finance
business, and also announced recently that it had extended its
vendor partnership with Fiat-owned CNH.

Meanwhile, another large international leasing
network, UniCredit Lease Group, told Leasing Life last
month that it is currently expanding its fledgling Italian vendor
finance arm (see Italian arm of UniCredit Leasing focuses
on growing vendor finance
). The Milan-based lessor is also
in talks with MAN Financial Services over broadening their existing
cooperation agreement.

Even lessors which received a hammering during
the recession are still managing
to maintain healthy vendor finance businesses.


New global business

For instance, CIT, which, intriguingly, was
dumped last year by Microsoft after nearly collapsing from a dire
shortage of cash, in recent weeks reported global new business
volumes during quarter one of this year of $500m (€407m),
significantly up on last year.

But it is not just bank-owned lessors and
large independents that seem to be hurtling forward in vendor
finance. Global manufacturers with a history of leasing third-party
assets are also building up their capability in this sector.

GE Capital told Leasing Life in an
exclusive interview (see Leasing Life May issue) that
during the first quarter of this year it signed no less than 10 new
vendor finance partnerships. Although it did not go near the
Microsoft deal, it is likely this was because of its focus on
industrial rather than software assets.

Siemens Financial Services, like GE, is also
strengthening its vendor finance arm. Although it has been in this
market for many years, it is now actively recruiting new staff to
build up this side of its business, as well as expand its financing
of Siemens’ own assets.

This drive is being spearheaded by Simon
Corbett, who joined SFS 18 months ago, and who, in recent weeks,
hired staff from Key Equipment Finance, a vendor finance specialist
which worldwide appears to be struggling (see Streamlining business), and Net Apps
(see On the move: June 2010).

Overall, much of this focus on vendor finance,
according to Julian Hobbs, managing director of Deutsche Leasing
UK, is being driven by customer demand.

Hobbs said: “We have received a lot more
enquiries from companies we have not spoken to before, often
competitors of companies we have worked with in the past. It is
almost a defensive measure – they see other companies doing


Demand has continued

This demand, it seems, has continued despite
the ebbs and flows of the economy. For instance, vendor
partnerships were signed in droves last year despite, according to
a recent preliminary analysis by Leaseurope, a near record
year-on-year drop in new leasing business volumes during 2009.

Meanwhile, signs of an even further pick-up in
vendor finance are expected as the leasing and manufacturing
sectors begin to normalise (see Positive signs).

Notwithstanding this, adopting a scientific
approach to understanding the scale of vendor finance in Europe is
nearly impossible given the dire lack of publicly available
information on this sector.

Reflecting this, last month, Leasing
Linkedin group was inundated with discussions started
by lessors pleading for solid vendor finance information.

“Do you have any data about the growth of
[vendor finance]?” asked Piero Biagi, general manager at BCC

“I would appreciate [being able] to get some
reliable, detailed [vendor finance] data segmented by industries,”
stated Stefan Bachmaier, general manager of leasing at Xerox.

As part of its research for this article,
Leasing Life last month contacted a number of
manufacturers which exhibited at Bauma, the international
construction machinery industry trade fair, to get a sense of how
many offered vendor finance and the levels of business they were

Atlas Copco would only reveal that it
accounted for finance lease receivables of about SEK1.3bn (€133m)
in 2009.

It also said that its customer finance arm did
business in about 60 countries.

Of the remainder contacted, Dana, Bucyrus,
Deutz, ZF and Haver & Boecker do not offer vendor finance,
while Sandvik, Wirtgen, Eickhoff, Takraf, Bauer Maschinen Group and
Duferco Clabecq refused to confirm whether they had such programmes
or to confirm any details.


Under the radar

The truth is that while on the surface vendor
finance appears to be booming, with large, high profile deals being
signed, under the radar the sector has its own strengths and

For instance, Leasing Life research
has shown the extent to which certain assets are better suited to
vendor finance than others.

A quick scan of the vendor finance activity
reported since the beginning of this year shows that the technology
sector has embraced it with particular enthusiasm, particularly
network operators seeking to fund infrastructure investment.

For example, in March, UAE telco Du struck a
€200m (approximately £170m) vendor financing agreement with Nokia
Siemens Networks, in a deal backed by Finnvera, a financing company
owned by the State of Finland.

Philip White, chief executive of Syscap, a UK
broker-lender in the high-tech vendor space which last month
launched operations on the European continent, remarked: “There has
been a slow burn of vendors looking to transition their upfront
sales to some form of payment over time.”

Companies offering finance in the IT space
have something of an advantage over those funding light commercial
vehicles, for example, in that information technology does not have
an indefinite lifecycle.


Small upgrades

“A lot of our funding over the last two years
has been small upgrades and add-ons, but those customers who have
done nothing will be forced to invest because in some cases their
kit simply will not work any more,” added White.

Evidence also suggests that vendor finance is
having success in the wider high-tech sector, with Eltraco, a
Scandinavian broker of SMT electronics manufacturing equipment,
saying that a quarter of its used sales are now conducted through
vendor finance programmes.

This figure has risen from a much lower level
over the last year, and is expected to increase as far as 50% over
the next two years.

The health care vendor finance segment also
has plenty of life, with De Lage Landen’s medical arm, which offers
finance in this space across the US and Canada, as well as
Australia, Asia and throughout Europe, having tripled in size over
the last three years.

GE Capital is also expected to expand its
presence in vendor finance with the health care segment by next
year (see Strong demand drives forward vendor


Not all sectors buoyant

But not all sectors are so buoyant. Not
unsurprisingly, given the challenges faced by the transport market,
vendor finance and captive players in the commercial vehicle market
continue to struggle, at least in Europe.

Volvo Financial Services, which either
finances assets using funds from its own treasury or through
lenders such as South Africa’s WesBank, saw new business drop 40%
last year. Business has picked up during Q1 of this year, although
mainly in growing markets such as China, Brazil and Australia.

The trailer vendor finance sector has also
been struggling of late. Cargobull Finance, (CBF), the vendor
partnership between trailer manufacturer Schmitz Cargobull and De
Lage Landen, described the market last year as “tough”, and that as
a result it had seen a decrease in financing activity in absolute

This is partly connected to a decline in
trailer production. In the UK, in 2008 manufacturers produced some
18,000 trailers, which dropped to about 11,000 last year, a fall of

Commenting on this, Karl Davies, services and
marketing director at GE’s TIP Trailer Services, said: “The
estimate for 2010 in the UK is 14,000 units.

“It will not go back to 2008 levels, as
manufacturers are more cautious because of the sudden drop in
demand they recorded last year.”


Continental Europe

This, however, has been less heavy than the
drop in continental Europe – in Germany and France, for example,
production declined by about 50% or 60%, although it has remained
higher in absolute terms.

Vendor programmes in the trailer market are
also suffering as a result of the overcapacity of previous years,
which is having an impact today on residual values.

 However, lenders are also benefiting
from the fact that according to TIP, which is also a remarketing
specialist, there has been an increased demand for used trailers
from Eastern Europe. TIP is also selling second-hand equipment to
companies in Dubai, Jordan, Afghanistan, and West Africa.

All lessors, including those in the vendor
finance space, have had to be flexible in response to the financial

Lease prices have gone up as a result of an
increase in the cost of steel and components since the beginning of

Furthermore, lenders have had to take a more
focused approach to which assets they lease.

For instance, to tackle rising costs,
according to TIP commercial director Mike Furnival, customers of
the trailer company have been looking for operational savings – in
particular, by focusing on assets such as double deck trailers and
aerodynamic trailers to save fuel. Vendor finance players also
report having to be flexible around lease terms.

But the crisis, as well as forcing vendor
funders to review their business practices has also created
opportunities. Again, in the trailer market Cargobull Finance has
seen its market share grow by 8%, thanks also to the withdrawal of
Bank of Scotland and Santander from the sector.


New territories

Meanwhile, there are signs that certain
jurisdictions are emerging as attractive places for vendor

As well as Italy, where UniCredit Leasing is
currently expanding its young vendor business, Ireland, too,
appears to be growing in popularity among vendor finance

Deutsche’s Hobbs commented: “Our Irish
business is experiencing especially strong demand as the Irish
banks have rowed back much more than their counterparts in the UK,
so equipment sellers in Ireland have a very limited choice of
finance partners. Vendor finance will become much more prevalent in
Ireland as a direct result of the recession.”

Germany, too, appears to be a solid vendor
finance market. Microsoft Financing’s (MSF) vendor finance
activities in Germany have seen growing interest thanks to the
current economic climate, according to the IT giant’s financing arm
(see Microsoft Financing arm sees

Furthermore, Germany is still Cargobull
Finance’s biggest market.

Despite all this, vendor finance remains a
complex business to be in, and generally as difficult to get right
as it was a year ago.

One lessor said: “Vendors want to know they
have a reliable partner and we have seen an increase in due
diligence. Companies are now more interested in your financial
strength than the range of products you offer.”


Building relations

Also, according to Rod Barthet, group sales
and marketing director at technology vendor Annodata, many lessors
are not putting enough work into building relations with

“From a supplier perspective, it is evident
that the some of lessors are taking a much more aggressive view
about what works for them without taking into account the impact on
the end users or the introducers themselves,” Barthet said.

He added: “Many of the larger funders do not
seem to recognise that they are creating a commodity product while
trying to charge a premium price for it, when compared with other
forms of funding which customers are far more likely to consider
these days.

“In essence their very models are creating
competition, not among the vendor or broker community, but among
the customers they are trying to attract,” Barthet said.

“There are one or two funders out there doing
well, who are getting the balance right between the management of
the relationship and risk management.”

Sean Toms, founder of Robinson Toms
Recruitment and a former MD of Lloyds Bowmaker Office Equipment
Finance, said: “Lessors are so desperate to win the new programme
that they fail to get the real commitment needed to achieve

At the top of a long list of such
“commitments” Toms included lease pricing on every quote, ease-only
promotions and blind discounts to encourage take up to win
strategically valuable customers.

Undoubtedly, however, although vendor finance
remains a tough business to master, it is still a fast growing and
fast moving sector with lots of potential.

As we went to press, lenders promised yet
further news on the story that has gripped the European leasing
market for several months: the future of the Microsoft Financing