Peter Landers, consumer finance expert at Grant Thorntons Leasing & Consumer Finance financial and strategic advisory team, advises Richard Brown where the opportunities lie in car finance.
Peter Landers has been in his post at Grant Thornton for three months, the first two of which were spent delivering projects led by Tarun Mistry, partner at Leasing & Consumer Finance.
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Five years ago Mistry was putting together a dedicated sector team in leasing and consumer finance, says Landers.
That team has now grown to 11 members, a blend of specialist accountants and people from the industry covering the UK and Europe.
In February, Landers was contacted by Mistry, who he had known for 10 years, and asked to work on a project recently completed for a large motor finance player.
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By GlobalDataThere are many very talented specialists at Grant Thornton, but Tarun has deliberately created a hybrid team of accountants and industry specialists, says Landers.
That team aims to provide businesses with a range of advisory services focused on the leasing and consumer finance industry, including access to debt funding, equity or acquisition opportunities both company and portfolio. It will also assist shareholders who wish to divest by selling divisions or book debt.
The Leasing and Consumer Finance team has a number of specialists in the valuation of portfolios, says Landers.
Were also able to undertake vendor or purchaser due diligence. Transaction advice, sector analysis or strategy validation weve worked with dozens of motor and consumer finance companies in recent years.
Grant Thornton has a great name in the industry. It punches well above its weight in motor finance through its dedication to the automotive and finance sectors.
Were able to leverage the skills of 4,000 people across tax, audit, compliance, corporate finance and operational advisory services. Given the environment were in, the biggest areas of impact on the motor finance industry are access to funding and compliance and regulation.
Questions of appetite
Although Landers says the industry belief that companies turn to teams such as his at times of challenge may often be true, it is just as likely he will be employed to work with companies though their most exciting phases strategy change, acquisition, new markets far more positive and exciting collaborations for companies of real ambition.
Such stimulation is present in car finance, where an increasing number of companies want to be, believes Landers. As proof, Landers says there are three significant companies eyeing the car finance market at a strategic level with the potential to create new business.
I’m confident that many banks not currently in the sector have capital to recycle and assets that can be used as a platform for growth in motor finance.
Lenders and investors have seen the returns that well-managed motor finance companies are now achieving, and they are comparing very favourably with other lending products.
Its fair to say they have also seen the terms of businessbetween dealers and finance companies become a little more equitable. That’s why were seeing a recent increased appetite amongst most lenders, prime and sub-prime.
The questions investors are asking are: Do they have a platform?, Do they have a competitive advantage?, Is the business profitable and scalable?, and more importantly, Does it have a strong management team?
Cost and perception
This biggest counterweight to the pull of this market, according to Landers, is regulation and the change of regulator.
We saw what happened around PPI, the impact on dealers both in cost and perception. The industry will see greater supervision and a greater need for compliance.
The industry has made great strides around regulation. Companies, however, must be very
careful when adopting processes that might be perceived poorly by the public or the regulator, no
matter how logical at a commercial level.
Issues in the industry have often come from lenders pushing the boundaries around core products, leading to the profitability or regulatory challenges that cause investors to lose appetite.I wouldnt advise companies to be testing those boundaries right now.
The biggest opportunity, however, lies in current low interest rates and borrowing costs, relative to income potential (if funding facilities have been secured), says Landers.
Obviously that creates opportunities for independents, a sector Landers splits into the big three Santander Consumer Finance, Black Horse and Barclays Partner Finance the larger, well-run companies such as MotoNovo, Close, Northridge and others, and the smaller, subprime and near-prime players.
Given the scale of those businesses, the gaps between those three segments are the obvious areas of opportunity.
More innovative dealer support funding, broader strategic alliances and more imaginative funding structures would be the other obvious areas of growth. Clearly, Grant Thornton can help in all three of those areas.
The relationship business
Anticipating such opportunities, the team has built very strong relationships with debt funders, equity finance providers and mezzanine finance providers. It is also broadening relationships in the sector with consumer finance players, brokers, debt purchase and collection companies, and software houses.
For fundraising assignments we take a companys platform, model and ambition, and then aim to sell its vision to potential funders, explains Landers.
The industry has gone through difficult times. Lenders are sometimes exposed to areas they dont want to be. They have assets they want to dispose of. Most big lenders are selling charge-off debt. Our role is in helping lenders sell debt in terms of valuation, transaction advice and finding a buyer.
Beyond the practical role, Landers says his work is very much a relationship business, although he acknowledges distaste for the term.
Only through understanding our clients and their businesses can we add value to them.
This business is based around opportunity, playing to the teams USP of sector dedication, focus, dexterity and expertise, explains Landers.
You have to be there when change is first discussed, and you have to have those relationships to find those opportunities.
Names change and Im building new relationships, but, as with any service industry, people provide opportunity to people they not just like, but trust to deliver."
