Organic growth and consolidation both present particular
problems for aspiring businesses, says Christian
Roelofs.
Go deeper with GlobalData
Liquidity concerns, capital constraints and the poor economic
outlook are causing many traditional funders in the leasing
industry to refocus strategies. Some are examining key products and
looking at leasing operations with increasing negativity.
Being a people and
capital-intensive industry, with products that often don’t
cross-sell readily with other core bank products, some traditional
funders have begun to shift their attention and capital
elsewhere.
This reduced appetite and, in some
cases, withdrawal, should inevitably lead to consolidation, and
therefore an opportunity for competitors to increase their market
share.
However, a growth phase must be
carefully planned and executed, as there are hazards when pushing
for growth, be it organic or via acquisition – not least of which
in the current market is accessing growth funding.
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By GlobalDataWhile companies choosing to grow
organically, especially new entrants, may enjoy healthy margins and
avoid any legacy issues, they will usually experience a long lead
time to establish a significant portfolio, and risk missing the
window of opportunity.
Key components of any growth plan,
such as market analysis, finding the right people and systems, and
developing internal processes, can also add to lead times, and
often distract management to the detriment of the existing
business.
In the early stage of assessing an
organic growth strategy, companies often employ an advisor to
undertake due diligence.
This can be an important first step
to assess aspects, such as the size, make-up and trends of the
target market, as well as revealing the attractiveness of the
product proposal.
With this information, management
is better informed to decide whether to pursue the growth
initiative as it stands, amend it as required and move forward, or
scrap the proposal altogether without committing significant
resources from the business.
A merger or acquisition can often
provide immediate benefits and allow a company to take full
advantage of the favourable market conditions.
However, there must also be an
appreciation of the time taken to negotiate these deals and then,
once the transaction has closed, to complete the integration
process.
In order to evaluate any leasing or
finance business during a due diligence process, time must be spent
on key areas including:
- a review of the financial
accounts - a historical performance and
forecast assessment - a credit
assessment - an asset
assessment - IT review
- HR review
- an assessment of the legal
and tax position avoiding many of the pitfalls.
Christian Roelofs is a member
of the leasing and consumer finance advisory team at Grant Thornton
UK
