Factoring firms, which handle a company’s accounts receivables for a fee, are in a unique position to offer merger and acquisition assistance ranging from company matchmaking to financing deals.
As consolidation in the retail industry continues to create larger companies, more vendors are forced to turn to strategic partnerships in a bid to stay competitive, factoring sources said. At the same time, larger vendors are on the lookout for acquisitions to add to their stable.
Factors find themselves offering a number of “unofficial services” to clients trying to navigate through a merger or acquisition. Many of the roles factors fill developed naturally out of the existing services they provide clients. Factoring firms have a high level of familiarity with the inner workings of their clients because their relationship with a client includes asset-based lending and the outsourcing of many back-office functions. That specific knowledge means factors are well equipped to get involved in deals.
“We form marriages and introduce companies,” said John LaLota, president, Sterling Factors Corp. “It’s another intangible benefit of being in a factoring relationship.”
By nature, a factoring company’s portfolio of clients is varied within the apparel industry. If, for example, a knitted goods client wanted to get into woven goods, a factor could be in a good position to hear of opportunities, LaLota said. Factors regularly help clients form strategic partnerships.
In the case of a company looking to acquire a partner or another business, once the marriage is arranged companies sometimes turn again to factors for more traditional help with financing.
“Factors’ lending formula is, coincidentally, specifically tailored for acquisitions,” said Michael Stanley, executive vice president, Rosenthal & Rosenthal.
Factors are often more comfortable lending larger sums of money to their clients than other financial institutions because they control their collateral, Stanley pointed out. Lending against receivables gives the factors real-time knowledge and understanding of a company’s assets.
On the other side of M&A deals, factors are able to provide information to potential acquirers about the health of a company they lend to. Information and statistics are regularly compiled by factors for clients about their own financials. At the request of a specific vendor, it is simple to provide the same bill of health to an outside party who might be looking to acquire that company, said Gary Wassner, president, Hilldun Factors.
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“When someone is interested in purchasing a client they contact us for the information they want from a financial standpoint. We are the best financial reference that our clients have,” Wassner said. “We are the first place that someone would go after the client’s own accountant for the kind of information they want [during an acquisition or merger].”
Aside from marrying clients with potential partners, factors find themselves frequently serving in an advisory role providing recommendations for other services.
“We offer our industry and financing expertise as a tool to build relationships,” said Jeff Guldner, chief credit officer, GMAC Commercial Finance. “We have an extensive network of industry resources available to assist our clients and prospects. These include accounting firms, law firms, industry consultants and trade groups who we work with on a regular basis to help our clients get the best advice possible.”