A Publication of The International Factoring Association

OCTOBER 2018 | VOL 20 | No. 5 Mergers & Acquisitions

ALSO INSIDE:

Congratulations! You’ve Closed the Deal; Now What?

Why and How Banks Acquire Commercial Finance Groups

Perspective from an Industry Veteran FactorAdvantage℠

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ACCREDITED BUSINESS Learn more at breakoutfinance.com or call 888.318.3534 ® TABLE OF CONTENTS OCTOBER 2018 | VOL 20 | No. 5

Perspective from an Industry Veteran By Allen Frederic

congratulations! You’ve Closed the Deal; now What? By Kwesi Rogers

valuations for factors By T.J. Humes and Tim Stute

california Dreaming at the 2019 Annual ifa Factoring Conference By Heather Villa

why and How Banks Acquire Commercial finance Groups By Aaron P. Graft columns

legal factor: Mergers and Acquisitions in the commercial Finance Industry By Steven N. Kurtz, Esq.

what’s new at ifa

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The Commercial Factor | OCTOBER 2018 3 from the executive director

by bert goldberg

After the conclusion of each year’s annual conference, I read the evaluations and start to think about what I can do to make the following year’s conference even better. Each year I’m told that it will be impossible to surpass the current year’s conference. With the 25th annual conference coming up in April, I think we may have hit another home run.

We’ve just released the schedule for the 2019 annual • Strategic Roles of Factors in Expanding the Frontier of conference and I’m more excited than ever about the Trade in the 21st Century year’s lineup of speakers and activities. Each year the • Unique Challenges of Factoring in Latin America speakers are more relevant to running a Factoring opera- tion and the activities are more exciting. We continue to • Factoring 101 and Sales 101 expand our offerings to serve every type of employee • And Much More within an organization to every type of company. Whether you are a small Factor, up to a multi-national Asset Based We are also bringing back the very popular roundtables. Lender, we have something for you. This will give attendees the ability to network with other individuals with similar interests and backgrounds. The The 2019 conference will be held April 3-6 at The roundtables we have planned are: Manchester Grand Hyatt in San Diego, CA. The Hyatt has been ranked as California’s Leading Business Hotel and is • Roundtable for Women located on the bay and adjacent to the Gaslamp District in • Roundtable for Senior Executives beautiful downtown San Diego. • Roundtable for Young Professionals Some of the speaking session highlights include: • Roundtable for Small Factors • UNthink with Erik Wahl • Roundtable for Operational Issues • Recognizing the Technologies and Trends Transforming Some of our networking activities include the Triumph Factoring with Simon Anderson Welcome Reception, Thursday Evening Reception, Tax • Searching the Dark Web: Finding Fraud Online Guard Dessert Reception, Closing Event at Parq, Young • How Artificial Intelligence and Machine Learning will Professionals Reception, Chapter Receptions, and the Change the Factoring Industry Saturday Idea Exchange. • Economic Forecast with Elliot Eisenberg, Ph.D. We’ve also planned some excellent activities, including golf and a food tour. • If I Could Turn Back Time—What I’ve Learned From Mistakes Made Additional information about the conference can be found on page 24 and at www.factoringconference.com. • Bank Owned vs. Independent Factor Our 2018 classes and webinars have been extremely • Lightning Round Legal Panel popular with many of them selling out. Our 2019 courses • Report from the Courts will be announced soon and in order to avoid being disap- pointed, I suggest signing up early. • Blockchain—How Factors Can Utilize This Technology Thanks for your support of the IFA and I look forward to • How to Create Referrals for Your Factoring Practice seeing you at an upcoming event. • IGNITE BRILLIANCE in Your Culture (1/2 Day Training) • Supply Chain Finance

4 The Commercial Factor | OCTOBER 2018 news

INDUSTRY NEWS

The International International Factoring Association Announces Launch of the Factoring Association Midwest Chapter 6627 Bay Laurel Place, Ste C The chapter will provide educational programs, serve as a venue Avila Beach, CA 93424 for members to network with local practitioners, exchange ideas MAILING: PO Box 39 Avila Beach, CA 93424-0039 and best practices, and discuss the impact of national and regional 805-773-0011 trends on their organizations.

Executive Director Laurie A. Montplaisir, Esq., Shareholder with Robbins, Salomon & Bert Goldberg Patt, Ltd. founded the Midwest Chapter which spans ten states, Published By including Idaho, Illinois, Indiana, Iowa, Michigan, Minnesota, Mis- The International Factoring Association souri, Ohio, Tennessee and Wisconsin. Editor/Design & Graphics Only IFA members can join the chapter and current members R&W Publishing Associates, Chelsea Kirtley located in these states will be grandfathered in as members of the [email protected] • 727-450-9870 new chapter. Advertising Sales R&W Publishing Associates For more information on joining the Midwest Chapter, contact [email protected] • 610-213-9105 Laurie by phone at (312) 456-0292 or by email at lmontplaisir@ Advisory Board rsplaw.com. If you would like more information about the IFA or are interested in forming a chapter in your area, contact Bert Goldberg Eric Belk Match Factors, Inc., Florence, SC by phone at (805) 773-0011 Ext. 302. Melissa Donald AmeriFactors Launches New Campaign with Legendary LDI Growth Partners, LLC, Walnut Creek, CA Football Coach Steve Spurrier Kee Kim Earlier this year, Spurrier returned to head coaching and Central Finance One, Inc., Los Angeles, CA Florida with the Orlando Apollos of the Alliance of American Foot- John Martin ball (AAF). As an official celebrity partner, Spurrier will be featured General Electric Company, Atlanta, GA in AmeriFactors latest marketing campaign which includes televi- sion, radio and social media. The campaign will launch just months Fred Moss Accord Financial Corp., Montréal, QC, CANADA before the Orlando Apollos’ inaugural season. Paul Schuldiner Paragon Financial Offers Fast Hurricane Florence Funding For Rosenthal & Rosenthal, New York, NY Business Clean-up Efforts Nel Somarriba Paragon Financial Group, Inc., an Asset Based Lending company New Century Financial, The Woodlands, TX specializing in No-Credit Risk Accounts Receivable Factoring and Kevin Wood Purchase Order Funding, offers fast funding for clean-up compa- Chesapeake Bank, Cash Flow Division, Gloucester, VA nies in the aftermath of Hurricane Florence’s expected damage. This includes storm debris clean-up, government contracts and The International Factoring Association’s (IFA) goal is to assist the factoring community by providing information, other business funding needs associated with the hurricane. training, purchasing power and a resource for factors. The This special program provides non-recourse, credit protected IFA provides a way for commercial factors to get together and discuss a variety of issues and concerns about the working capital for companies affected by Hurricane Florence look- industry. Membership is open to all banks and finance ing for fast working capital options to help their company stay cash companies that perform financing through the purchase of invoices or other types of accounts receivable. positive through increased demand because of the critical clean-up and repair needs. The Commercial Factor is published bi-monthly by the International Factoring Association. To subscribe, please email [email protected]. INDUSTRY TRANSACTIONS The Commercial Factor magazine invites the submission of articles and news of interest to the factoring industry. For Brookridge Funding and Veritas Financial Partners Provide more information on submitting articles or advertise- $19.3 Million Financing to New Jersey-Based Importer (“The ments, email [email protected], or call 805-773-0011. Company”) of Recreational Equipment The views expressed in the Commercial Factor are those Veritas Financial Partners (“Veritas”) announced the closing of of the authors and do not necessarily represent the views of, and should not be attributed to, the International a trade finance facility in partnership with Brookridge Funding Factoring Association. The Commercial Factor | OCTOBER 2018 5 equity sponsor’s investment, and to midwest chapter provide working capital for growth. news events Sallyport Commercial Finance (“Brookridge”), a provider of purchase Assists with a Successful October 11 order finance solutions in the United Turnaround for a Company in a 4:30pm-8:00pm States and Canada. Distressed Situation with Their Current Lender 1st Meeting & Reception With $30 Million in open, unfilled or- Sallyport Commercial Finance delivers Civic Opera Building ders, the importer needed incremen- a $7,500,000 combined credit facility 20 North Wacker Drive, Chicago, IL tal funding or risked losing its orders. that includes an Accounts Receivable Brookridge and Veritas were able to Hosted by: 12five Capital, LLC, Line, Inventory Line and Term Loan quickly underwrite the Company, Robbins, Salomon & Patt, Ltd., to a family-owned apparel company negotiate an intercreditor agreement Republic Business Credit, LLC and with over 30 years of experience. The with the existing ABL lender and fund Sky Business Credit, LLC business breached several covenants the transaction, thereby assuring the with their current lender, and caused product was delivered on time to a contentious situation and lender customers. Tradewind Provides Export fatigue that affected the ability for Factoring Facility to Leading Amerisource Completes the business to continue to trade. The Readymade Garment Manufacturer $2,000,000 Credit Facility for company found some direction and in Bangladesh Oilfield Services Company relief from their existing real estate Tradewind has announced a Amerisource Business Capital an- lender who helped negotiate a settle- $500,000 credit facility for a leading nounced the closing and funding of ment and then championed Sallyport ready-made garment exporter based a $2,000,000 credit facility for a to support their ongoing working in Bangladesh. The company sells to recently acquired oilfield services and capital. several renowned buyers in Europe, heavy-haul trucking company based including Primark, and in the US and is in Texas. Proceeds of the facility were using the facility to support increasing used to leverage the new private SaleSforce conSulting

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6 The Commercial Factor | OCTOBER 2018 sales on open account payment terms from a referral by a consultant well to its existing and future customers. known to the team. Rosenthal’s $1 canada chapter events million purchase order finance facility Gibraltar Business Capital allowed the client to fulfill its direct or- Announces Increased Credit Facility ders from various major league sports November 2 with Wells Fargo franchises. The supply chain financing 11:30am-1:30pm Gibraltar Business Capital announced requirements involved purchasing IFA Canada - JD Factors - BDC an increase in its credit line with Wells patented performance apparel from - Moreault Conseillers Joint Fargo Capital Finance, part of Wells an international supplier and paying Factoring Lunch Fargo & Co. (NYSE :WFC), increas- domestic screen printers and embroi- ing its borrowing capacity from $75 derers for the value-added process- Mergers & Acquisitions Financing/ million to $100 million in support of ing to complete a finished garment. Business Development Latest Trends continued growth. The deal involved cash payments to Holiday Inn, Pointe-Claire, QC The credit facility also includes an ac- all suppliers as well as funding for all RSVP to Rowela Basa at rbasa@ cordion feature, which could increase logistics costs. montrealheritage.com the line up to $150 million in anticipa- tion of Gibraltar’s continued growth Wells Fargo Capital Finance Provides November 13 $30MM in Lender Finance to Alterna over the next year. 8:30am-11:00am Capital Solutions Crestmark Provides More Than $35 Legal Panel—Bankruptcy Matters Million in Commercial Financing to Alterna Capital Solutions, a specialty December 11 94 Businesses in the First Half of and alternative financing lender to TBD September small businesses experiencing growth, End of Year Gathering Crestmark secured a total of announced a $30 million asset-based $14,400,000 in ABL financial solu- credit facility with Wells Fargo Capital Meetings Location: tions with 17 transactions for 15 new Finance, a division of Wells Fargo & Mississauga Living Arts Centre clients; Crestmark Equipment Finance Company. The line will be used to Scotia McLeod Room provided $2,968,342 in four new expand Alterna Capital Solutions ser- lease transactions; Crestmark Vendor 4141 Living Arts Drive vices to the nation’s growing number Mississauga ON L5B 4B8 Finance provided $6,800,000 in 73 of small-business owners who require new lease transactions; and the Gov- a financing partner skilled at comple- For more information, call ernment Guaranteed Lending division menting a business’s established bank Oscar Rombolà at (905) 603-6284 provided $10,866,000 in financing relationship. or email for two new clients in the first half of [email protected]. September. TradeCap Partners Provides Visit IFA Canada’s website at $4.7MM ‘Work-In-Process’ Purchase TAB Bank Closes $2.5MM Revolving Order Facility to California-Based www.FactoringAssociationCanada.com. Credit Facility with Natural Foods Consumer Goods Company Company TradeCap Partners provided a $4.7MM A foods company based in California Now from another Factoring company Purchase Order Facility to a California- in order to leverage Capital Now’s has chosen TAB Bank for a $2.5 million based, branded consumer goods revolving credit facility. The new facil- rapid, common sense, business fund- company. The facility was structured ing. ity is extended through a multi-year to satisfy increased working capital agreement and will provide for the needs related to seasonal Black Friday CapitalPlus Construction Services company’s ongoing working capital and Holiday pallet programs with a Celebrates Record Month in August needs. national wholesaler. CapitalPlus Construction Services, out Rosenthal Provides $1 Million of Knoxville Tennessee, celebrated Alberta Commercial Dry-Wall a record month in August purchas- Production Finance Facility for Contractor Positioned for Rapid ing approximately $6.5 million in Georgia-Based Athletic Apparel Growth with $200,000 Facility from receivables across numerous clients in Manufacturer Capital Now Inc numerous sectors of the construction Rosenthal & Rosenthal, Inc. an- A full service commercial drywall con- industry. nounced the completion of a recent tractor in Southern Alberta recently purchase order finance deal for an partnered with Capital Now to cover Utica Leaseco, LLC Completes Two athletic apparel manufacturer based costs associated with rapid business Transactions Totaling $1,400,000 in Georgia. growth. during the first half of September The transaction was sourced by They’ve access to a $200,000 credit 2018 Rosenthal’s Southeast regional office, facility and were referred to Capital Utica Leaseco, LLC completed the

The Commercial Factor | OCTOBER 2018 7 • $500,000 PO facility to an importer Simon Hitzig as President and Chief northeast chapter of women’s apparel. Executive Officer effective October events • $250,000 PO facility to an importer 1, 2018. Simon takes on the role as of kitchen appliances. Accord completes a five-year trans- October 16 formation, becoming one of North 11:30am-6:00pm • $1,000,000 PO facility to an im- America’s leading commercial finance porter of ski equipment. NYIC, IFA Northeast, DeBanked companies. Former President and & AFBA 2018 Lending • $500,000 PO facility to an importer CEO Tom Henderson remains with the Conference of slack lines and gymnastic equip- Company as Vice-Chairman and direc- ment. tor. Simon joined Accord in 2011 after a Arno Ristorante, New York, NY long career in the investment industry. • $500,000 PO facility to an importer of commercial lighting. For more information, call Lisa Masters Joins Breakout Capital Harvey Gross at (732) 672-8410 or • $2,000,000 PO facility to an im- Finance’s McLean, VA Team as Vice [email protected] or visit porter of toys. President of Business Development Lisa will be working closely with www.ifanortheast.org. inFactor Provides $500,000 Credit Breakout Capital’s FactorAdvantage Facility for Workforce Training and partners to strengthen and foster Development Firm the established relationships, adding funding of a $400,000 Capital Lease inFactor Capital recently closed and strategic elements to the program as secured by Machinery and Equipment funded a $500,000 credit facility for well as exploring and implementing for a fabrication company in Texas. a workforce training and development additional ways to collaborate to- Utica provided the working capital firm based in Kentucky. Proceeds gether. Lisa comes to Breakout Capital needed for this company to grow and of the facility were used to support from HCA Healthcare where she was expand operations. Utica is proud to continued growth and sales opportu- Director of Physician and Provider Re- provide financing based on collateral, nities. lations, and has a strong background not credit. in sales, business development and Commercial Finance Partners Closes strategic relationship management. Utica Leaseco also completed the $9MM in Funded Deals in August funding of a $1,000,000 Lease Commercial Finance Partners an- Justin Carter, Amerisource’s Market secured by machinery and equipment nounced that the company closed five Manager, Appointed to RMA Board for a farm located in Michigan. The SBA 7a Term Loans in August with a Amerisource Business Capital an- customer was particularly grateful total funded volume of $9 million. The nounced that Justin Carter, market for Utica Leaseco’s ability to provide requests ranged from debt refinanc- manager, will serve as Programs Chair the needed financing within 3 days ing, construction financing, and work- for the Risk Management Association of the initial request. This brings the ing capital—all borrowers received (RMA) Los Angeles Chapter. total funding for this customer to over term loans ranging from $300,000 to Founded in 1914, RMA is a not-for- $7,500,000. $3,000,000, ranging with terms from profit, member-driven professional 10-25 years. Thermo Credit Provides Acquisition association, whose sole purpose Financing for H/Cell Energy Versant Funding Provides Non- is to advance the use of sound risk Thermo Credit, LLC (“Thermo Credit”) Recourse Factoring Facility to principles in the financial services extended financing in the form of a Startup Chemicals Supplier industry. RMA promotes an enterprise $350,000 asset-based loan to H/ Versant Funding announced a $5 approach to risk management that Cell Energy Corporation (“HCCC”), a million factoring facility for a startup focuses on credit risk, market risk, company that designs and implements specialty chemicals supplier in the oil and operational risk. Headquartered clean energy solutions featuring and gas industry. The company was in in Philadelphia, Pennsylvania, RMA hydrogen energy systems. The lending need of a consistent cash flow in order has approximately 2,500 institutional facility was utilized to finance an ac- to grow. With the help of Versant’s in- members that include banks of all quisition that expands the geographic flux of cash, the company has already sizes as well as nonbank financial in- reach, technical services capability doubled its sales in only a couple of stitutions. They are represented in the and customer base for HCCC. months. association by 18,000 risk manage- ment professionals who are chapter Gateway Trade Funding Completes PERSONNEL members in financial centers through- Six Transactions out North America, Europe, and Asia/ Gateway Trade Funding, a PO and Accord Financial Appoints Hitzig Pacific. • Trade Financing company, recently President & CEO, Henderson Moves completed the following purchase to Boardroom order transactions: Accord Financial Corp. appointed

8 The Commercial Factor | OCTOBER 2018 UPCOMING EVENTS INTERNATIONAL FACTORING ASSOCIATION 10/15-16 Small Factors Meeting

THE Planet Hollywood, Las Vegas, NV 2018 10/18-19 Think Ahead Or Be Left WORLD’S Behind Training Course LARGEST Planet Hollywood, Las Vegas, NV 10/25-26 Construction Factoring ASSOCIATION Training Course Planet Hollywood, FOR THE Las Vegas, NV 10/30 How Your Clients Record FACTORING Factoring Transactions IFA CALENDAR Webinar AD 1-2pm PDT INDUSTRY 11/14 Factoring in the Staffing Industry ANNUAL CONFERENCE Webinar 1-2pm PST AMICUS BRIEF PROGRAM 1/23-25 Presidents & Senior 800-563-1895 AE CERTIFICATION PROGRAM Executives Meeting 805-773-0011

DISCUSSION GROUPS Casa Marina, Key West, FL www.factoring.org [email protected] LEAD GENERATION 3/5 Annual Meeting w/ NYIC & www.factorsearch.org IFA Northeast Chapter 2019 Arno Ristorante, New York, NY DISCOUNTED PRODUCTS FACTORING SURVEY 4/3-6 Annual Factoring Conference & LEGAL FORMS Manchester Grand Hyatt, San Diego, CA TRAINING COURSES 6/17-18 The Law & Business of Factoring Training Class MENTOR PROGRAM Planet Hollywood, Las Vegas, NV SOCIAL MEDIA COMMUNITY 6/20-21 AE-LO Training Class Planet Hollywood, Las Vegas, NV MEETINGS, FORUMS & MORE 9/4-6 Transportation Factoring Meeting The Driskill, Austin, TX

The IFA offers CLE credits for upcoming programs. For information on approved programs and states, please contact Heather Villa at The International Factoring Association is registered with the National Association of State [email protected] or 805-773-0011 ext. 301. Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the These training courses have been approved for CAEF credits. acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be For information on approved programs and courses, please submitted to the National Registry of CPE Sponsors through its website, www.learningmarket.org. contact Terri Baker at 805-773-0011, ext 303. Mergers & Acquisitions OCTOBER 2018

Perspective from an Industry Veteran

Having spent 45 years in the financial industry, half in banking and half in specialty finance, I have followed the cycles of merger and acquisition activity. Over the last 22 years in factoring and in asset based lending, I have completed 10 acquisitions and considered over 4 dozen. Additionally, I have consulted on valuation and M&A structure on a number of projects. Accordingly, I have observed that M&A activity is like the stock market or the price of oil—it goes through cycles. While this can be said about M&A activity in general, specialty finance does not necessarily follow this pattern.

By Allen Frederic

I remember attending a CFA conference in 2007 at which Buyer/Seller Considerations the two speakers on an M&A panel, Andrea Petro of Sellers typically desire to sell for one or more of the Wells Fargo and Tim Stute, who was with Milestone at following reasons: the time but is now with Hovde Group, both stated that premiums were as high as they had previously seen in our • Cash out when premiums are high industry. Sitting next to me was a good friend who took • Capital constraints those words to heart and sold his company for a signifi- • Cost of capital cant premium, taking advantage of market timing. Two years later, in 2009, after the financial meltdown, high • Inability to compete for larger transactions premiums were a distant memory and some companies • Loan agreement constraints were selling at book or at a discount since many lenders and investors had fled the factoring and specialty finance • To buy out other shareholders or sub debt lenders market.

10 The Commercial Factor | OCTOBER 2018 Typically, buyers want: • New niches in specialty finance • Experienced management team • High-yielding earning assets THE PERFECT • To complement other specialty finance products PARTNER FOR SMALL • To bolster C&I lending and & LARGE PORTFOLIOS increase interest income and fees Build your balance sheet by working with a fellow factor • To buy out shareholders or sub that truly knows and understands your business. Lender debt holders Finance from Hitachi Business Finance offers: Over the last two years we have seen significant activity in specialty finance, especially in factoring, as • Loans from $1-25 million • Scalable credit lines private equity, BDCs, and banks have • Minimal covenants • Syndication been very active in this market. In opportunities the recent past we have seen M&A activity involving United Capital Funding, Federal National Payables, Allied Affiliated Funding, Vertex, Mike Semanco, President [email protected] Crestmark, Paragon, Gibralter, hitachibusinessfinance.com/lenderfinance Far West Capital, Max Capital and Interstate Capital Corp—just to name a few. In the fourth quarter of 2017 alone, it was reported that 15 trans- actions were in the specialty finance space, 21 occurred in the 3rd quarter. Not all of these are in factoring or asset based lending. Some were equipment finance, consumer finance, etc. Nevertheless, it illus- trates activity is clearly heating up in the specialty finance sector.

Valuation While valuations have fluctuated wildly over the last 10 years, certain principles remain constant. • Platforms demand higher premiums than portfolios. A platform includes all of the assets needed to operate a business such as the employees, systems, customer files, software, contracts, marketing engine, etc. • The largest companies tend to get bigger premiums. A Factor with $5 million of net funds employed will not demand the

The Commercial Factor | OCTOBER 2018 11 Mergers & Acquisitions OCTOBER 2018

same percentage premium as a All of the other components searches. Further, it is important Factor with $100 million of net discussed must also be taken into to evaluate quality of the people, funds employed, simply because consideration. systems, procedures, etc. BDCs, the latter will usually have a which are public companies, might more sophisticated and valuable Role of Professionals utilize recognizable, large CPA firms platform. as they must consider regulatory While several investment banks and fiduciary responsibility to share- • The higher the yield on net have been involved in our industry, holders. Others may use collateral funds employed, the higher the the most active has been the Hovde field examiners from a variety of premium. Group, represented by Tim Stute firms that have special expertise in formerly of Houlihan Lokey. Both • Portfolios with small historical looking at Factors and ABL shops. Hovde and its peer companies have losses and charge-offs demand 3W, a Dallas-based company that been most active in larger transac- higher premiums. does collateral field exams for a tions (i.e. companies with $20 to number of lenders in the specialty There are generally three ways $25 million net funds employed finance space is one such specialty to value a factoring platform or and up). In the last year Tim Stute, company which I have employed, portfolio. Managing Director and Head of but there are many more with a 1. A multiple of after tax earn- Specialty Finance at Hovde Group, good understanding of the unique ings or EBITDA. advised on Interstate Capital in its nuances of factoring and asset sale to Triumph Bank, Multi Service 2. A multiple of tangible book based lending. net worth. Factoring to BAM, Federal National Commercial Credit in its sale to 3. A premium as a percentage White Oak Global Advisors, and Summary of earning assets or net funds North Mill Capital in its sale to Solar As discussed, we are currently in an employed. Senior Capital. Investment banking attractive environment with higher During 2007, we saw premiums fees, typically 3% of total consider- premiums for sellers and heightened as high as 50-65% of net funds ation with a minimum (subject to interest from buyers with strong employed. Two years later, many some negotiation), many times leave desires for higher yielding C&I companies were selling at a discount smaller seller companies (i.e. less assets. Successful transactions are to net funds employed or book than $20 to $25 million net funds culminated when the interest of values, due to the fact that both employed) to either represent them- buyer and seller coincide. Following investors and lenders had disap- selves or utilize consultants such a are key questions which Buyers and peared from the specialty finance Commercial Finance Consultants Sellers should entertain throughout pocket. Currently, premiums have led by David Rains, which has the Buy/Sell process: rebounded. While most recent completed transactions for Axiom 1. Will the Seller and the transactions are private, it is Bank (FL) and its acquisition of management team stay estimated that the current market Allied Affiliated Funding, Fidelity involved? may be 4.5 to 8 times EBITDA or Bank portfolio to Republic Business a 40-65% premium to net funds Credit, BAM in its Vertex acquisition, 2. Will the Seller reinvest? employed or 1.5 – 2.25 times book and Sienna to Pavestone. 3. What benefits will the Buyer value. Valuation depends on port- bring to the table such as a lower folio size, cost structure, efficiency, Due Diligence cost of capital, the ability to do loss history, and other consider- Buyers perform due diligence in larger transactions and new ations. Valuations are both industry various ways. If the buyer is an financial products? specific as well as company specific. existing specialty finance company, 4. Last but not least, is the ques- For factoring companies, higher it may use its own staff to perform tion of cultural compatibility. premiums to net funds employed due diligence. Republic Business If the Buyer expects the Seller may mean lower multiples of earn- Credit, LLC, where I serve as Vice and management team to stay ings or vice versa depending on a Chairman, utilized our own staff to involved, are their culture, vision, number of variables. Assuming two conduct due diligence on all of our and values compatible and do they $50 million portfolios, one with a acquisitions. This entails looking have the same unifying objective yield in the mid-20s and one with a at portfolio quality, contract life, going forward? With heightened yield in the mid-teens, both would verification of receivables, insuring not receive the same premium as a first lien positions, adequate assign- competition in our industry from percentage of net funds employed. ments, subordinations and tax lien Continued on page 34

12 The Commercial Factor | OCTOBER 2018 Mergers & Acquisitions OCTOBER 2018

Congratulations! You’ve Closed the Deal; Now What? The specialty finance market has enjoyed a robust level of activity during the first 9 months of 2018. Furthermore, a hypercompetitive marketplace has made it difficult to solely rely on organic growth to realize growth objectives. Many organizations have used mergers and acquisitions to scale their platforms in what is otherwise an extremely competitive environment.

By Kwesi Rogers

The opportunity to realize hockey inform the team as to why the Based upon my experience, there stick-like growth through an acquisi- transaction will serve as the catalyst are some keys to successfully tion strategy is often discussed for corporate and individual growth. managing the team through the in business circles; however, the Each employee who participates in change that they so violently inherent risk of losing vital resources this kick-off meeting arrives at the oppose. It is imperative post-trans- in an unsuccessful transaction is meeting with their own thoughts by action to manage required change not typically discussed. One of the way of their individual experience. through human resources. key reasons most mergers and It is not uncommon for employees n You must establish a sense of acquisitions do not succeed can be to fill in the blanks with their own urgency. The patient (employees) attributed to the buyer’s inability to version of the story. Unfortunately, suffered a shock to their system integrate the seller’s personnel and their version of the story generally when the deal was announced. A systems into the buyer’s platform. contributes to declining morale. As successful integration hinges on People are not particularly fond of such, it is important for the new the buyer communicating a plan change, especially that which they executive team to communicate of action swiftly. Quickly commu- did not initiate. Once a deal is final- with the new team members early nicating a plan provides the team ized, management typically meets and often to address their concerns with a sense of purpose. If the plan is with the employees to announce and avoid distractions that run the not communicated, then the sense that the deal has closed. During this risk of derailing the integration of purpose will be replaced with a meeting, the presenters generally process. sense of despair.

The Commercial Factor | OCTOBER 2018 13 Mergers & Acquisitions OCTOBER 2018

n You must establish a team with Integrating the human capital remain with an antiquated system the talent, authority, resources for 25 years, I was forced to reflect. and ability to lead the effort. Your acquired in an acquisition is My reflection caused me to realize employees know who is capable paramount to the success of I did not feel like dealing with the of leading them through the maze change all of these years, so we of uncertainty. If the buyer fails to that acquisition. Integrating remained with the original system. task a capable team with affecting processes and systems is also The White Oak executives did a change, the effort is doomed for great job of explaining the “why” failure. key to effecting a successful behind this project to the team. n You must have leaders with integration post-transaction. White Oak Global Advisors is an a vision. As I mentioned earlier, SEC-registered alternative asset this change was “forced” upon manager whose strategy consists of providing attractive returns to the employees (in their eyes). The n Align the change with the institutional investors through leader(s) must provide a compelling corporate culture. The change direct lending activities to small story that demonstrates how this must align with the corporate and middle market businesses in transaction and the subsequent culture in order for it to remain the domestic and international change is going to create a future sustainable. Change that is not markets. White Oak’s approximate that is clearly an improvement over anchored in the corporate culture is $8 billion dollars of institutional the present circumstance. The destined to dematerialize. leader(s) must continuously stress capital, in addition to our senior Integrating the human capital the vision. debt facility, was one of the attri- acquired in an acquisition is butes I was attracted to in White n Leaders must remove the paramount to the success of that Oak. Implementing Sales Force obstacles which run the risk acquisition. Integrating processes provides White Oak’s fundraising of preventing the team from and systems is also key to effecting professionals with the data required realizing the vision. Persisting a successful integration post- to continuously attract the capital obstacles will cause the team to transaction. In most acquisition required to grow our business. The focus all of their energy on the chal- transactions, the buyer and the “why” tied right back to our strategy lenges which will have an adverse target run the business with the which made the transition to Sales effect on their performance. assistance of differing information Force more palatable. technology systems. These systems n Management must identify Once we discussed the why, we often streamline the respective and celebrate the wins along the put together a project team and operations, by automating routine way. Successfully effecting change clearly defined the objectives for the administrative and repetitive busi- requires a lot of heavy lifting over system conversion. The team articu- ness functions, thereby reducing long periods of time. Focusing on lated what we hoped to accomplish costs and improving operating the wins during the journey is a using the SMART convention. great way to keep the team engaged efficiencies. The resulting changes n and focused on the larger goal of often provide management with Specific: We discussed what the successfully implementing change. more reliable and timely data with end result would look like which to make decisions. n n Avoid announcing victory Measurable: We put together before crossing the finish line. Upon consummating our recent a means of measuring the result Claiming victory prior to realizing transaction with White Oak to ensure we knew the difference it can be deflating to the team Global Advisors, management of between success and failure! upon the realization they have not White Oak Business Capital, Inc. n Actionable: Does the team finished the race. Reenergizing and formerly known as Federal National have what we need to successfully refocusing the team could prove Commercial Credit was asked to complete this project? implement a few system changes. to be an insurmountable task that n Realistic: Is the desired outcome Our first task was to transition from causes the team to fail in its effort to achievable? implement change. Avoid claiming our legacy Customer Relationship victory prematurely, as it is a surefire Management (CRM) system to Sales n Timing: What is the deadline? way to snatch defeat from the jaws Force. When asked why Federal of victory! National management elected to Continued on page 34

14 The Commercial Factor | OCTOBER 2018

legal factor by Steven N. Kurtz, Esq. OCTOBER 2018

Mergers and Acquisitions in the Commercial Finance Industry

Within the last year or so, there have been multiple sales and acquisitions of factoring and commercial finance companies. Most of these have been happy deals, where the owner of a Factor/commercial finance company, who has been in business for several years, sold the company for a substantial profit. This is a win-win situation.

The equity ownership of the seller is forced to either turn the portfolio all of the assets of the seller, but it receives the benefits of all of their over to the lender or work with the also assumes the seller’s liabilities. past efforts and investment, key lender to effectuate a sale of the For the buyer, if the deal is going management people often receive portfolio to a stronger company. to be done this way, you will need a financial windfall for all of their This article will focus on legal issues, to do a lot of due diligence. You hard work and a retention bonus which impact the happy side of the need to assess the situation with to stay on with the new owner, M&A world for factoring and/or all of the seller’s creditors, review and the buyer benefits because commercial finance companies, but all litigation, get complete infor- it has expanded its business, many of the concepts here apply to mation on pending liabilities, and and assuming it has done its due the unhappy deals. assess tax compliance. If the deal diligence, will presumably profit The first order of business on the is a stock or membership interest from the deal. The reason why most legal front is to determine the sale, the buyer will either merge of the transactions have been happy vehicle for which the business the seller into the buyer, merge deals is because the economy is will be acquired. One method is the buyer into the seller, which strong. That means many organiza- a complete sale of the ownership is known as a reverse merger, or tions are in expansion mode and interest of the seller, which would acquire the seller as a subsidiary there is ready access to the capital be a stock sale if the business is a of the buyer. But the net result is necessary to effectuate an M&A corporation or sale of the member- that the buyer acquires the seller’s deal. Not all M&A activity has been ship interest if the business is an business by purchasing the equity on the happy side. Sometimes the LLC. A sale of the ownership interest interest of the seller’s owners. Factor/commercial finance company results in the buyer not only owning A second method to sell the gets in trouble with its lender and company would be a sale of all or

Steven N. Kurtz, Esq. has represented Factors, banks, and asset- based lenders on a continuous basis since 1987, and he is the Co-general Counsel to the IFA. A founding partner of Levinson Arshonsky & Kurtz, with offices in California and Oklahoma, he practices in the areas of commercial law, insolvency, workouts, loan documentation and trade finance, in both transactions and litigation matters. He can be reached by phone at 818-382-3434 or by email at [email protected].

16 The Commercial Factor | OCTOBER 2018 most of the seller’s assets. An asset there is no deal until a compre- based upon some terms drawn on a sale will operate to sell all of the hensive agreement is executed napkin, in the corner of the bar, at an seller’s main assets, and does not after compliance with all corporate IFA conference. The proposal letter transfer any of the seller’s liabilities, formalities. The letter should contain should also allow for time to conduct if the price is fair, all taxes are paid, the essential business and legal due diligence, and lock up the seller and the seller’s secured creditors points, such that that the lawyers from finding other deals during the are paid, or adequate arrangements can then begin the contract drafting due diligence period. are made. Remember, perfected based upon the terms contained Due diligence is an important liens always follow the collateral in the proposal letter. A properly process. The buyer needs to be that has been transferred, if the drafted proposal letter ensures able to see how the seller works sale is not in the ordinary course that one does not get in trouble and examine all of its financial and of business. A sale of all or most of the assets is never in the ordinary course of business. This means that all liens must be accounted for and addressed. The assets subject think you know your stuff? to the asset sale should include at least all of the good factoring and/or lending contracts, general intan- Prove it! gibles, contract rights, goodwill, all Certified ACCount exeCutive in fACtoring intellectual property, trade secrets, know how, copyrights, trademarks, You are eligible to sit for the Certified Account licenses and the furniture, fixtures, and equipment. The parties will executive in Factoring exam if you have been now need to consider allocating involved in Factoring for at least two years and the purchase price amongst the you are or have been in an purchased assets, which requires Account Executive role, or you consultation with financial have managed such a professionals. position. No matter the structure of the deal, a significant amount of planning tHe ProCeSS iS eASY... must go into the offer. Many deals, even the smaller ones, are made Any qualified candidate can sign-up, there is no need or arranged through investment for employer sponsorship. Qualified candidates can bankers or brokers, for the simple schedule the exam at a supervised testing center reason that it is often awkward to in a nearby city and will take a 100 item, multiple shop your company, or let the world choice exam. know that you are out to acquire other companies. Generally, one ProudLY diSPLAY tHe CAeF deSignAtion wants to be discrete because if Do knowledge of the sale is out there The exam was not designed to you in the community and the deal be easy; many candidates or your ultimately is not consummated, report that taking the exam employees then it may negatively affect a future took every bit of the two sale or ability to transact business. possess the A knowledgeable investment hours allotted and not everyone who takes the knowledge banker or broker should understand exam will achieve this prestigious credential. base to become the market conditions and help Certified? the parties arrive at a fair price. Candidates who pass the exam can proudly display However, once the research is done, their CAEF designation by using the Join The Growing then it is important to first begin the CAEF logo and C.A.E.F. initials to Ranks of CAEF’s process with a detailed proposal show the world they are proficient and Sign-up Today! letter. The proposal letter should in the field of Factoring. make sure that the letter is just for visit www.factoring.org for more discussion purposes only, and that information or call 805-773-0011

The Commercial Factor | OCTOBER 2018 17 legal factor OCTOBER 2018

business records, all while being The assets being transition process. New employees discrete. The buyer should have purchased need to be come on board and some are knowledgeable audit people on the terminated (sorry to sound cold or ground looking through all of the properly described so clinical, but that’s what happens). records, and a high-level person Licenses and leases are now in the on-site as well. The buyer should do that it can transfer a going hands of the buyer. The postclosing the business equivalent of an MRI, concern business. A good transitional issues are where the and should be conducting extensive people skills are required. For the searches for all types of intellectual asset purchase agreement new team members, they must be property and look for consensual integrated and welcomed into the liens and tax liens. Before due will also specify assets buyer. Factor clients/borrowers diligence is complete, the buyer and must be met and brought into the seller will need to determine proce- which are excluded from fold, and be kept “in the family”. All dural issues. Is the seller’s office the sale and not acquired good factoring and lending agree- staying? Are employees staying? Is ments have provisions which allow the portfolio being absorbed and by the buyer. for the Factor/lender to assign its moved to a different location, with rights in the agreement, but, it’s a the buyer’s employees taking over good idea to let the Factor clients/ most of the deals? What business asset purchase agreement can take borrowers of the seller know about contracts will the buyer assume, up a long article, there are some the sale and basically state that which contracts don’t go and how important considerations to make their next funding request is all that do you account for a potential sure are met in the agreement. The is needed to come into the buyer’s breach? These are sensitive issues assets being purchased need to be portfolio. properly described so that it can and must be handled and discussed While the concepts in the happy transfer a going concern business. before the contract drafting begins. deals apply to most M&A transac- A good asset purchase agreement Once due diligence is complete, the tions, keep in mind that business will also specify assets which are deal should close within a reason- runs in cycles. That means that there excluded from the sale and not able time. will be a time when there will be acquired by the buyer. Among the Most of the recent deals are more “unhappy” M&A deals. So, with excluded assets will be the portfolio structured as asset sales, because that in mind, for those running their deals which the buyer does not want the buyer wants to ensure that it companies, or for those who have to take over, which are typically the is not stepping into any unknown significant responsibility, or even problem or defaulted Factor clients/ problems. Again, assuming that for those that have more limited borrowers. Finally, the documents there is fair consideration for the responsibilities, keep in mind that should be accompanied with appro- assets being sold, and all liens nobody wants to be on the wrong priate resolutions, executed by the against the purchased assets are side of an unhappy deal, which board, if a corporation, or members, satisfied, or if the liens are not usually happens when there are if a limited liability company. satisfied, arrangements with the too many defaulting Factor clients/ lienholders are made, the buyer Next comes the closing. Most deals borrowers, and the Factor/commer- acquires the assets free and clear are done with virtual closings. cial finance company’s lender and/or of liens or other claims. The asset Once the parties are good with investors lose confidence. Unhappy sale structure seems to work best the agreements, all due diligence M&A deals in an economic downturn in smaller or middle market Factors contingencies have been finalized, are tougher because some of the or commercial finance companies, and all “i”s have been dotted and credit sources financing the happy but many large deals are also asset “t”s crossed, the parties can close deals tend to dry up or get more sales, especially if it’s the sale of a and fund. The closing and funding conservative. Because business runs division. The operative document process can be very fast. The closing in cycles, there will be a part two to to acquire the purchased assets will is basically signing and getting all of this article around the time of the be the asset purchase agreement. documents together, and wiring the next economic downturn. • Although the details of a proper funds to the seller. Next comes the

18 The Commercial Factor | OCTOBER 2018

Mergers & Acquisitions OCTOBER 2018

Valuations for Factors Initial forms of factoring date back to 2000 BC in ancient Mesopotamia, and the more modern form of factoring took shape in the 1300s. For an industry that has been around for hundreds, if not thousands, of years, how can a factoring company build franchise value? Many factoring companies provide a handsome return to their investors, but in an M&A situation, how does a factoring company get valued by something greater than just a return on invested capital?

By T.J. Humes and Tim Stute

20 The Commercial Factor | OCTOBER 2018 The basic business model is simple— providing these services helps with accounts receivable are purchased When we look at valuation, new business and client retention. at a discount and the Factor earns whether for an M&A Most of these strategies require revenue by collecting more than some upfront investment; however, they advance. Offsetting revenue transaction, capital raise, the marginal cost of each lead is are the costs to identify, underwrite, or just a benchmark, we low. One easy and inexpensive and collect purchased receivables. typically focus on three way to build value in the business Of course, the money used to development function is to invest purchase the receivable has a cost metrics: price to earnings, in or establish a robust pipeline associated with it, too. As I have yet price to tangible book monitoring system. Tracking even to see a factoring company with a (equity), and premium obvious turndowns is valuable. In business strategy of collecting more an M&A process, it is common that a than the face amount of a purchased to net funds employed seller will say they see transactions receivable, the opportunity to create (accounts receivable minus they’d like to do but don’t have the value lies in the ability to manage right capitalization to pursue them. the offsets to the finite revenue client reserve). Being able to pull out an actual list opportunity. of those opportunities strengthens Before addressing drivers of value, such statements considerably. For it’s worth addressing how value range for price to tangible book and business development, value is is measured. When we look at premium to net funds employed. created from improved profitability valuation, whether for an M&A Conversely, companies with from proprietary deal flow. transaction, capital raise, or just a depressed earnings may seemingly Once a lead is identified, the oppor- benchmark, we typically focus on be valued at a rich earnings multiple, tunity to build franchise value in three metrics: price to earnings, but in actuality be valued at a light underwriting comes from speed and price to tangible book (equity), and premium relative to tangible book accuracy in aggregating customer premium to net funds employed and net funds employed. information and making a financing (accounts receivable minus client So, how do you maximize value decision. Some larger small business reserve). In the first two metrics, and be at the upper end of these lenders have invested millions of price refers to equity value, and multiple ranges? Let’s start with the dollars developing programs that tangible book is tangible assets ability to identify new customers. gather an enormous amount of data minus liabilities. Premium is calcu- Having a team of business develop- on a potential borrower to arrive at lated as the dollar amount of price ment officers (BDOs) is the most a credit score and automated credit minus tangible book. That dollar common strategy we see. Finding decisions. That type of investment amount is then divided by the net quality BDOs is challenging and may not be feasible or practical funds employed. Since capital struc- hiring the wrong ones can be costly. for many Factors. For small to tures can vary greatly, we typically A premium is ascribed to platforms medium-sized Factors, third party treat subordinated/mezzanine debt that have a differentiated source service providers are sufficient, and as equity. Price to after tax earnings of new business. Some compa- what’s important is the concerted multiples range from high single nies have agreements to receive effort to improve automation and digits to low teens. Price to tangible turndowns from banks and other direct access to information. With book multiples range from 150% to financing providers. While these a customer’s permission, a Factor 300% of tangible book. Premiums agreements are rarely exclusive, can directly pull bank account, to net funds employed range from they can provide low cost deal flow. billing, and accounting information. mid-teens to 50%+. All three ratios Other Factors provide auxiliary In addition to bringing down costs, need to be balanced and valuation services to the industry they cover. multiple sources of data and direct should not focus on the one metric For example, Interstate Capital, a access to information reduces the that provides the most attrac- Factor focused on the transporta- risk of fraud. tive valuation. Highly profitable tion industry, created their own In the portfolio monitoring and companies may trade at an earn- load board that they manage. Other collection function, the obvious ings multiple in the low end of the Factors provide accounting or driver to building franchise value range and be at the high end of the billing software to their customers; is reducing charge-offs; however, thoughtful investment in technology

The Commercial Factor | OCTOBER 2018 21 Mergers & Acquisitions OCTOBER 2018 and processes can demonstrate understanding each party’s expec- Tim Stute is a institutionalization which also tations ahead of a sale process is Managing Director enhances the value of a platform. crucial to maximizing value. and Head of Specialty Similar to the underwriting func- Love them or hate them, projections Finance in the investment banking tion, automation and direct access matter and affect value in an M&A to information can significantly group at Hovde process. In addition to comparable Group and is based in the firm’s enhance a Factor’s ability to monitor public companies and precedent McLean, Virginia office. Prior to accounts receivable collateral and transactions, a discounted cash flow joining Hovde, he was a member cash receipt data. Once collected, of a set of projections is a standard of Houlihan Lokey’s Financial Institutions Group. He has nearly developing an integrated dashboard valuation practice. Ultimately, 20 years of experience providing or report demonstrates a thoughtful management needs to be able to organization of the data. Real time capital markets and M&A advisory stand behind the assumptions in a services to the financial institutions data collection allows for quick forecast and feel confident in their sector, with a particular emphasis responses to exceptions, and trend ability to deliver. While a full article on the specialty finance industry, monitoring can identify potential could be dedicated to how aggres- including equipment leasing fraudulent activity. companies, asset-based lenders, sive projections should be, there accounts receivable factoring How well the above topics are are a few considerations worth companies, and non-mortgage addressed is ultimately a reflection noting here. For starters, an M&A consumer lenders. Tim can be of the strength of the management process typically runs around six reached by phone at 703-214- team, which along with overall months, so potential buyers are 8520 or by email at tstute@ portfolio credit quality, is the single going to be able to track how well hovdegroup.com. biggest driver to franchise value. the company is doing relative to Deficiencies or holes in the manage- projections. If the company is well ment team should be addressed off, the credibility of projections is well in advance of an M&A process compromised. Also, an M&A process T.J. Humes is a to maximize value. Assuming the is distracting to management, so Director in Hovde’s right team is in place, there are a few showing accelerated growth during Specialty Finance investment banking considerations that could signifi- the M&A process is likely a recipe to group based in the cantly detract value if not properly come up short. To maximize value, McLean, Virginia addressed. Generally for factoring management should be thoughtful office. He provides investment companies, the highest premiums and thorough in the development of banking services, including capital are paid in transactions where the financial projections. markets solutions and M&A management team intends to stay advisory, to financial institutions Admittedly self-serving but none- nationwide. He has particular with the platform. Buyers tend to theless true, hiring the right financial emphasis on the specialty finance seek 3-5 year commitments from advisor is also critical to maximizing industry, including commercial key members of management, value. While the financial advisor’s finance, small business finance, residential mortgage finance, and and the timing of a sale should most visible role comes during the accommodate that. If a member financial technology companies. M&A process, the relationships with He has advised clients on sell-side of management is a large share- your banker should start well in and buy-side of M&A transactions holder, he or she should not wait advance. A knowledgeable banker and has facilitated debt and equity until they want to retire to sell the can provide feedback on where capital markets transactions. T.J. business. Conversely, if manage- a company stands in the various can be reached by phone at 703- ment is not a large shareholder, the 214-8522 or by email at tjhumes@ drivers of value mentioned herein hovdegroup.com. shareholders should address any and opine on what value the market sort of incentive plan in advance of may ascribe to the company today. contacting potential buyers to make As the most active advisor to the sure shareholder and management factoring industry, Hovde Group has interests are aligned. The dynamic unrivaled market insight and experi- between shareholders and manage- ence. • ment is unique to each company, so

22 The Commercial Factor | OCTOBER 2018 “THE MUST ATTEND EVENT OF THE YEAR!” For Anyone Involved with the Factoring & Asset Based Lending Industries

APRIL 3-6

CHE AN STE M R

G R T T A N D H YA The World’s

Largest Conference for the DON’T MISS OUT Commercial Finance Industry CALL TO REGISTER: REGISTER • Over 60 Speakers 805-773-0011 TODAY! factoring.org • Exhibit Hall with over 50 vendors 6627 BAY LAUREL PL., STE. C, OR REGISTER ON-LINE AT: AVILA BEACH, CA 93424 • Hospitality Suites & Closing Event INTERNATIONAL mail: P.O. BOX 39, FACTORING • Activities including Golf & Food Tour factoringconference.com AVILA BEACH, CA 93424-0039 ASSOCIATION

The International Factoring Association is registered with the National Association of State The IFA offers CLE credits for the Factoring Conference. Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the Information on approved states is available at info@ National Registry of CPE Sponsors. State boards of accountancy have final authority on factoring.org or contact the IFA at 805-773-0011. the acceptance of individual courses for CPE credit. Complaints regarding registered This conference has been approved for CAEF credits. sponsors may be submitted to the National Registry of CPE Sponsors through its website: For information on approved programs and courses, www.learningmarket.org. please contact the IFA. 2019 Annual IFA Factoring conference OCTOBER 2018

California Dreaming at the 2019 Annual IFA Factoring Conference On April 3rd -6th attendees from all over the world will gather for high-level education and countless networking opportunities in the place known as “America’s Finest City” for the 25th Annual IFA Conference. With more than its fair share of sunshine, gorgeous beaches and a newly buzzing restaurant scene, San Diego is the ideal location for the most important event of the year in the commercial finance industry.

By heather villa

Few people who have visited San Diego need convincing Enjoy your stay during the Factoring Conference at the of its endless attributes. An ideal climate, 70 miles of tallest urban waterfront resort on the West Coast at coastline and diverse topography draw outdoor enthusi- the Manchester Grand Hyatt San Diego. Located in the asts to San Diego year-round. With lively neighborhoods, heart of all of the action, this waterfront hotel combines an internationally renowned craft beer scene, and one of the convenience of access to many of San Diego’s top the world’s most beautiful urban parks, there’s a whole attractions and is steps away from the famous Gaslamp lot of San Diego to explore. Follow the music to where the Quarter. Proving that the hip and historic are hardly nightlife is one of the most buzzing scenes on the West incompatible, the Gaslamp Quarter combines beautifully Coast. restored 19th-century buildings and 21st-century nightlife. It all starts here with 16 walkable blocks packed with over

24 The Commercial Factor | OCTOBER 2018 180 restaurants, 50 bars and 10 ones they’ve been using so far. You’ll services operating globally. She is nightclubs. begin the process of rethinking your known as a go-to attorney for block- Called one of “America’s best cities life as a blank canvas of limitless chain developers, virtual currency for foodies,” by Travel & Leisure opportunity on which to create your exchanges and wallets, FinTech magazine, San Diego’s culinary masterpiece. companies, payment processors, scene is a burgeoning, vibrant mix of Recognizing the Technologies and prepaid access providers, and other locally inspired flavors, from delight- Trends Transforming Factoring software developers. This session fully simple to sophisticatedly artful. (Simon Anderson, Venture will focus on what Blockchain tech- Thanks to award-winning chefs, an Foresight)—This session will look nology is, how Factors can utilize explosion of world-class breweries, into the near future of the Factoring it and predictions for how it will and a thriving local wine region, San industry. Simon will recognize and change Factoring. Diego delivers a top-notch experi- point out important trends and tech- Ignite Brilliance in Your Culture ence to quench all of your taste nologies that are reshaping Factors, (AmyK Hutchins, Business buds. and provide new approaches to Strategist)—It’s time to think differ- San Diego is also home to two Tony® anticipate the opportunities and ently! What skills must we develop Award-winning theaters, a sports challenges that these advancements to successfully take on tomorrow? stadium, historic sites, public art, could create. Topics to be covered Do we possess the behaviors neces- music venues, dance performances, include the impact of generational sary to create a leadership culture film festivals, galleries, missions and trends, workforce and workplace that fosters trust, innovation and much more to explore. Get ready trends, and a variety of important generates long-term growth? In to find a beautiful and friendly city emerging technologies. Lastly, he this compelling and energetic half ready to welcome you to a true will discuss specific actions and day training session, leaders will be Southern California experience. next steps that can be taken right inspired and equipped to raise the away to make organizations more performance & productivity of their What’s on Tap for 2019? future-resilient. teams. Through humor, insight and Searching in the Dark Web: experience, AmyK provides real- Exciting things are in store for 2019. Finding Fraud Online (Cynthia world, straightforward tools that Planning for next year started the Hetherington, Hetherington have immediate practical applica- moment this year’s conference Group)—The dark web is a den of tion. AmyK shares how to ignite ended, allowing us to take our time iniquity operated by the technically and harness the brilliance in teams formulating new topics and discus- sophisticated. The more Google- in order to create unprecedented sion ideas that will be worthwhile dependent we have become, the competitive advantages that drive to the attendees. Over twenty less we understand what is going businesses forward faster. speaking sessions have already on behind the scenes and how to Develop Your Sales Team by been organized. Now the hardest operate in this world. This session Overcoming Sales Challenges part will be to decide which ones to will introduce the dark web and (Paula Hope, Coach & Author)— attend. Different tracks are set up to channels that are used to institute Paula is one of North America’s maximize exposure to all aspects of private sales and exchanges. leading experts in the field of referral the industry. Beginner to advanced, marketing and strategic networking. operations to management, young The Current Economic and She is the owner of her 10-year-old professional to seasoned veteran... Financial Outlook (Elliot Eisenberg, company aptly named “Booked there is something for everyone! Ph.D., GraphsandLaughs, LLC)—Hear how the economy will affect Factors Solid”. Paula speaks, writes, trains Unthink (Erik Wahl, The Art of by a nationally acclaimed economist and coaches business professionals Vision)—Creativity is in all of us. and public speaker specializing in on leveraging their relationships We simply need to rediscover the making the arcana and minutiae into referrals, resulting in enhanced keys that will unlock our potential. of economics fun, relevant and revenues, fulfilled targets and This session will help reframe your educational. very comfortable lifestyles. This thinking so that new creative actions session will help you reduce the gap become possible. Learning how Blockchain—How Factors between the revenue you desire and to UNthink will inject your daily Can Utilize This Technology & the revenue you generate. grind with new passion, allowing Predictions for How it Will Change Report from the Courts (Bob employees to see how their organi- Factoring (Carol Van Cleef, Esq.)— Zadek, Esq., Buchalter)—Hear the zation wants and needs all of their Carol provides counsel to a full lessons learned from this year’s talents and energies, not just the spectrum of banks, securities firms, insurance companies, and money

The Commercial Factor | OCTOBER 2018 25 2019 annual ifa factoring conference OCTOBER 2018

court decisions and how the courts they made those decisions, what Interactive Legal Panel at treated IFA members. they learned and what knowledge Lightning Speed—This panel will Transportation Factoring (David they can pass on to you. Given the address a wide range of legal issues Jencks, Esq., Jencks & Jencks, many opportunities for errors to and topics that constantly come up PC)—Receive an update on the be made in Factoring, this session in relation to Factoring and secured transportation industry as well as will be extremely educational and lending by responding to a series time for discussion on key topics entertaining. Some types of missteps of rapid-fire questions. There will related to Transportation Factors. that we will be discussing are: Taking be interactive participation by the on a Client That Resulted in a Loss; attendees who will be polled before Factoring 101 (Brian Center, Liquid Over-Advancing to a Client; Merger/ a response is given by the panel Capital Corp.)—Learn the nuts and Acquisitions That Went Wrong; Hiring members. The results of the polling bolts of Factoring for beginners Decisions That Did Not Work Out. will be displayed after the question or those wishing to enhance their has been addressed by the panel so previous knowledge. Artificial Intelligence (AI) and the Factoring Industry—Artificial each attendee will be able to see if Sales 101 (Mark Baker, BAM Intelligence (AI) and Machine the panel agreed or disagreed with Worldwide, LLC)—With internet, and Learning (ML) will modernize and their response. social media, the method of selling streamline Factoring, bringing Strategic Roles of Factors in Factoring services has changed new efficiencies to the industry. Expanding the Frontier of Trade dramatically in the last decade. Factors will need to make use of in the 21st Century—Developing During this session, Mark will be this technology or find their opera- countries may have some trade discussing some new ideas and tions have become outdated and difficulties due to the infrastructure methods to market and sell your inefficient. Some of the topics to challenges and unfriendly / incon- Factoring services. be discussed are: What is Machine sistent trade policies. Factors can Unique Challenges of Factoring Learning (ML)?; What is Artificial help address these challenges and in Latin America (Pedro Armada, Intelligence (AI)?; How Are They the stimulate trade both domestically CFE, Armada Risk Consulting)— Same/Different?; How Can Factors and internationally by building Pedro Armada is an experienced Take Advantage of ML?; Payment confidence and stimulating trade. investigator and risk consultant Performance; Churn Management; Factoring offers a credible alterna- having worked in the investigative Sales and Marketing; Steps to Put tive and a complement to the role industry since 2009. He will be ML into Practice Now. of banks and financial institutions discussing topics such as: Why does Comparing Bank Owned vs. The in order to deepen alternative trade it make sense for Factoring firms Independent Factor—There are finance. to investigate/conduct diligence advantages and disadvantages in Latin America; What sorts of to running a Factor department Roundtable Sessions: things should Factoring firms be independently versus being bank- Our highly-rated Roundtable looking for/at when they investigate owned. Our panelists have operated sessions give you ample time to a prospect or another party in the Factoring departments under both network and learn from others with region; What issues complicate the types of ownership. They will be similar roles within the Factoring process of investigation/diligence discussing the specific pros and cons industry. Each Roundtable will be in the region; What can firms do to to each ownership type. led by industry professionals familiar mitigate those issues and to protect Supply Chain Finance—Supply with the specific group and will themselves when operating in Latin provide an open discussion forum America? Chain Finance, (Supplier Finance or Reverse Factoring) historically between conference attendees. They include: Panel Sessions: has been used by larger buyers and global suppliers. This type of • Roundtable for Women in If I Could Turn Back Time—We have financing is now being used domes- Commercial Finance all made decisions that we wish we tically by smaller companies. During • Roundtable for Senior Executives could take back. It is important to this session, we will be discussing learn from those mistakes so that how SCF works and various ways • Roundtable for Young they are not repeated. Our panel- that you can enter this type of Professionals ists will be discussing some of their financing. • Roundtable for Operational Issues biggest Factoring blunders, why • Roundtable for Small Factors

26 The Commercial Factor | OCTOBER 2018 Networking & More: There are endless possibilities to exciting and thrilling to learn, do learn, grow and socialize with the and discover in San Diego, so what “Tremendous networking oppor- brightest minds in the industry better place to host the IFA Annual tunities,” seems to be the theme at the 2019 Annual IFA Factoring Factoring Conference where you can within all the conference evaluations Conference. Although ranked as experience the same! we receive each year. The IFA not the nation’s eighth largest city, San only takes pride in providing a forum For more information Diego’s laid-back beach mentality for top-quality education, but also and to register, go to creates a casual atmosphere, giving in the valuable time devoted to www.factoringconference.com. conference attendees the ability to networking. In that time, attendees relax and enjoy the company of like- are able to gain respected contacts, minded professionals from all over conduct business deals, learn from the world. There’s always something others and share ideas about how to succeed in the industry. Some of the events we have planned for 2019 include: • Triumph Welcome Reception spon- sored by Triumph Business Capital and Triumph Commercial Finance • Golf Tournament • San Diego Food Tour • Young Professionals Reception • Thursday Reception • Breakout Small Factor Lunch • Breakout Transportation Factoring Lunch • Tax Guard Dessert Reception • Closing Event at Parq Restaurant & Nightclub ●Idea Exchange

Heather Villa is the Managing Director of the International Factoring Association. She is responsible for managing and directing the IFA’s external communications as well as managing the business affairs of the Association. She assists with event planning, speaker selection and contract negotiations for all training seminars and conferences, including the annual Factoring Conference. Heather can be reached at 805-773-0011 ext 301 or [email protected].

The Commercial Factor | OCTOBER 2018 27 what’s new at ifa OCTOBER 2018

Bill to Require Disclosures for All Commercial Financing By the American Factoring Association (AFA) Board of Directors

The American Factoring Association the burden the legislation might information includes the total (AFA) continues to be engaged in place on Factors. amount of funds provided, informa- Washington; however, this year Under this legislation, a provider tion related to the payments to be it became engaged in addressing offering to a recipient commercial made, and the total dollar cost of the issues arising from state legislation financing of less than $500,000 financing. in California. Specifically, it followed must disclose to the recipient The AFA believes that other states and worked on SB 1235, which specific information relating to that may adopt disclosure standards was sponsored by California State transaction at the time the offer of as a result of concerns over the Senator Steve Glazer and which was commercial financing is made and Merchant Cash Advance industry’s adopted by the California legislature obtain the recipient’s signature of dealings with small business owners. in September. The AFA did not favor receipt of that disclosure before While such legislation’s target may the legislation, but it worked with consummating the commercial not be true Factors, there may Senator Glazer in an effort to reduce financing transaction. The specified be unintended consequences for Factors. This is one of the reasons why the AFA has been following the California developments. Announcing our new website... Also, over the years, California has often been at the forefront in creating new regulations and legislation. Further, more than 3.8 million small businesses operate in California, helping make the state the world’s fifth-largest economy. Given the state’s economic heft, the AFA believes the California legisla- tion may give rise to legislation of this type in other states. The International Factoring Association is excited to announce the This is where you come in. Your generous support over the years has official launch of our new updated website at www.factoring.org helped the AFA to call on Members FEATURING OUR of Congress, the Executive Branch • THE IFA’s ANNUAL CONFERENCE is the world’s largest event for Factors, Asset Based and independent federal agencies Vendor Locator Service Lenders & Supply Chain Finance Companies. to educate them on the Factoring The IFA’s Vendor Locator Service lists vendors of interest to the • THE CERTIFIED AE IN FACTORING (CAEF) industry. We’ve developed mean- Receivable Finance & Factoring industries, including attorneys, designation is the first professional certification of its kind. ingful and important relationships UCC search firms, funding sources, and many more. • EDUCATION, training courses, meetings, in Washington with members In addition to all qualified Vendors, there SEARCH FOR VENDORS BY: webinars & relevant events for the Factoring are also IFA Preferred Vendors listed that Category Industry. of the House Financial Services offer discounts or superior services to IFA State/Province • DISCUSSIONS, MEETINGS & FORUMS Committee, the Senate Banking members. Country Access to the IFA Member Community Committee, and the various agen- Keyword Discussion Forum. cies that regulate the banking and • STORE - Purchase Factoring books, forms, 6627 Bay Laurel Pl., Ste C, 805-773-0011 reports, webinars and more. financial services industry. The AFA Avila Beach, CA 93424 factoring.org • JOB BOARD - Search for or list jobs. has created a bipartisan group of

28 The Commercial Factor | OCTOBER 2018 Members of Congress who under- will help us continue to spread our IFA member to contribute to the AFA stand the important role Factoring message and to be an advocate for as we are in the midst of our annual plays in the American economy. As our industry. This is a very inex- membership fund drive. Currently, a result, they will be able to speak pensive insurance policy to help we have Bronze Members who have contributed as little as $500, up to up for Factoring and the role it plays protect our industry from needless Diamond Members who have contrib- when issues may arise. regulation which will be both costly uted in excess of $10,000. This is a All of this important work, however, and burdensome. Please consider very inexpensive insurance policy to would be dramatically reduced if donating today! help protect our industry from needless the AFA lacks the needed funding The goal of the AFA is to increase regulation which will be both costly and prohibitive. Please consider supporting to perform its role. The AFA needs membership and financial support the American Factoring Association. • your help! Your monetary support from every IFA member. We urge every

2018 Members As of October 1, 2018 Diamond Member ($10,000+) Bay View Funding QC Capital Solutions Apex Capital Corp Commission Express National, Inc. Match Factors, Inc. Crestmark Bank Durham Commercial Capital Mazon Associates, Inc. D & S Factors Evergreen Working Capital Michael Ullman—Ullman & Ullman, P.A. Gulf Coast Business Credit FirstLine Funding Group Nationwide Capital Funding, Inc. International Factoring Association FSW Funding Orange Commercial Credit J D Factors Lenders Funding, LLC Primary Funding Corporation LSQ Funding Group Prosperity Funding, Inc. Spectrum Commercial Services MP Star Financial, Inc. Riviera Finance, LLC Company Sallyport Commercial Finance, LLC SevenOaks Capital Associates, LLC The Hamilton Group TBS Factoring Service, LLC SouthStar Capital, LLC Viva Capital Funding LLC Triumph Business Capital Transport Factoring, Inc. Xynergy Healthcare Capital LLC White Oak Business Capital, Inc. Silver ($1,000—$2,500) Bronze ($500—$1,000) Platinum ($5,000—$10,000) Alleon Capital Partners LLC Advantage Business Capital BAM Worldwide, LLC Amerisource Funding, Inc. Business to Business Capital Corp. Far West Capital AmeriTrust Capital Corp. Camel Financial, Inc. Goodman Factors, Brookridge Funding Cash Flow Resources, LLC a division of Independent Bank Business Finance Corporation Concept Financial Group Great Plains Transportation Services, Inc. Capital Solutions Bancorp, LLC Entrepreneur Growth Capital Interstate Capital Corporation Commercial Finance Consultants Exchange Capital Corporation Mickey Seeman— Commercial Finance Group Finance One, Inc. Owner, Sunbelt Finance Commonwealth Capital, LLC Firmco Business Funding Millennium Funding Contractors Capital Solutions Grace Capital Resources, LLC Phoenix Capital Group, LLC Coral Capital Solutions LLC Greenback Capital PRN Funding CV Credit Inc. MarcFunding, LLC Republic Business Credit, LLC David Jencks—Jencks & Jencks, PC New Century Financial TAFS, Inc. David Pape—Commercial Business Other (Under $500) United Capital Funding Corp. Funding Corporation David B. Tatge, PLLC Gold ($2,500—$5,000) Factor King, LLC FactoringClub Accord Financial, Inc. Gateway Commercial Finance Hawaii Receivables Management, LLC American Funding Solutions LLC J.O.B.E. Services, Inc. Plus Funding Group AmeriFactors Financial Group, LLC K.W. Receivables Stonebridge Financial Services, Inc. Assist Financial Services, Inc. Kiran Ramasamy - Vayana Network TradeGate Finance, Inc. Levinson, Arshonsky & Kurtz, LLP

The Commercial Factor | OCTOBER 2018 29 what’s new at ifa OCTOBER 2018

Our Preferred Vendors have undergone a screening and evaluation process. When you contact the Preferred Vendors, you will need to indicate that you are an IFA member to receive your benefit. If you offer a good or service to the Factoring Industry and are interested in applying for Preferred Vendor Status, please contact the IFA at 805-773-0011.

Associations Credit IFA Member Benefits: 50% cost savings for the monthly membership fee. It is normally Ansonia Credit Data The following trade associations offer member $1,000 per month, but IFA members will pay pricing for events attended by IFA members: With more than 250 Factors and over $800 $500 per month. billion in data, Ansonia provides Factors and ABL Beijing Commercial Factoring lenders an innovative way of managing debtor Credit Card Processing Association (BCFA) and Mergers & Acquisitions risk. Our business Clarus Merchant Services Colombian Association of Factoring credit reports feature current and historical Clarus Merchant Services offers a custom (CAF) days-to-pay information collected directly from program developed specifically for how the the accounts receivable departments of small Commercial Factoring Expertise Factoring Industry processes their credit card and large factors, and other companies across transactions. Our program provides detailed Committee of China (CFEC) all segments. www.cfec.org.cn reporting that allows tracking of each invoice and Phone: 855-ANSONIA • 855-267-6642 x.103 fee transaction for easy account reconciliation Ecuadorian Factoring Association www.ansoniacreditdata.com with their customers and clients. We work with (ASOFACTOR) IFA Member Benefits: Free VIGILANTE™ each member to ensure all processing costs www.asofactoring.org Portfolio Analysis. Try Ansonia’s unique new are covered and that they are doing so within program for monitoring credit portfolio the guidelines of MasterCard / Visa. In addition FCI risk. Call today to receive a comprehensive we provide IFA members direct access to their www.fci.nl review of your entire portfolio. account manager for immediate response and Romanian Factoring Association Credit2B support. (RFA) Trusted by all of the majors because of the sheer David Powers, Member Relationship Manger www.asociatiadefactoring.ro volume of Factor trade and 98% third-party Phone: 540-222-3925, • www.clarusdc.com Certified Email data coverage of active businesses in North Email: [email protected] America, Credit2B is a cloud-based platform IFA Member Benefits: Any IFA member that RMail that empowers accurate and timely decisions purchases the CardX program will receive a Go Paperless. Switch to RMail to Send your by connecting the experiences of trade credit one-time $200 rebate once the member has Important Notices. RMail services allow factors to grantors around their common business processed a whole month using the program. end disputes attributed to missing, misplaced or customers. We combine this highly valuable ePaymentAmerica denied receipt of notification emails for notices trade network information of approximately ePaymentAmerica is the nation’s leading of assignment, notices of default, borrowing base $700B in recent receivables with live bureau provider of processing services for the factoring, certificates, and other important notifications. It and public filing information to provide compre- A/R financing, and P/O financing industries. They also helps speed invoice collections with proof of hensive financial risk profiles, all in real time. offer IFA members exclusive VISA, MasterCard, invoice delivery irrefutably starting the accounts Our dashboard also provides Factor specific receivable aging clock. scoring, Factor client risk pools, monitoring, peer American Express and discover pricing, a benchmarks and comprehensive trade data pack discount on their virtual gateway, and a discount www.rpost.com/ifa on PCI Compliance Certifications. IFA Members save $300! Subscribe to 1000 solutions for integration into your enterprise units RMail plan for only $390! (Normally software. Phone: 901-385-5327 $690) Phone: 212-714-4500 www.epaymentamerica.com Website: www.credit2b.com Email: [email protected] Consulting IFA Member Benefits: Join the largest IFA Member Benefits: Interchange Plus FactorHelp virtual factor community. Receive 10% Pricing* Bundled Monthly Service Fee of $30.00 (includes IRS regulatory compli- FactorHelp has come to be regarded as the price discounts for being an IFA member. ance, account maintenance, PCI compliance, factoring industry’s premier resource provider. Complimentary invitations to our hosted events in NYC. virtual gateway & online management tool.) Their manuals, in use on every continent of *Based on volume/ transaction count. the world, are setting the industry standard, FactorsNetwork and their reputation as the one-call solution Disaster Recovery Services FactorsNetwork provides an online platform for factoring problems is growing. By consis- where Factors share trade experiences Agility Recovery tently introducing innovative, viable products, with each other. Members are able to pull vigilantly cultivating an extensive alliance of For the past 25 years, Agility Recovery has unlimited Credit Reports as well as monitor Strategic Partners and providing the profes- been a premier provider of onsite recovery and analyze their portfolio. Transportation sional expertise demanded of an industry solutions across the United States and Canada. Factors benefit from our CarrierMonitoring and leader, FactorHelp strives to maintain its goal of When disaster hits, Agility will be on the scene, providing the unparalleled service the factoring ChameleonCatcher programs and their clients providing you with any, or all, of the critical industry expects from a solutions partner. profit from our LoadBoard. We even offer a Sales elements you need to keep your business in busi- Tool to help you find new clients. ness: power, space, technology, connectivity. Phone: 972-722-3700 • www.factorhelp.com Membership also includes access to a dedicated IFA Members receive a discount of 10% on Phone: 435-659-4612 their consulting fees and 5% discount on all www.factorsnetwork.com Continuity Planner and secure access to your FactorHelp products in the IFA store.

30 The Commercial Factor | OCTOBER 2018 myAgility planning portal to assist in building Software efficient, real-time and actionable insight into and maintaining your business continuity plan. the true, non-public IRS tax compliance status FactorFox Phone: 866-364-9696 of their prospects and clients. Our due diligence FactorFox Cirrus is a cloud application for reports, tax compliance monitoring and resolution www.agilityrecovery.com factors, their clients, brokers, lenders, and solutions support commercial lenders throughout Email: [email protected] others who enter or access data. Entries can be every stage of the funding life-cycle. IFA Member Benefits: 5% discount to each made and reports accessed from any internet- Phone: 646-502-4478 • www.tax-guard.com respective client’s monthly ReadySuite connected computer, tablet, or smart phone. As Email: Rich Porterfield; membership fee. a web-native program, there is no extra cost for [email protected] setting up your account or to access your data; Funding IFA Members will receive ten free IRS Tax further, you receive three hours of free training Return Transcripts within the first 30 days Liquid Capital Corp. online. FactorFox’s various versions make it of service. One time offer also extended to Liquid Capital has been in the Factoring industry suitable for nearly any size factor. current IFA members. Phone: 866-432-2409 • www.factorfox.com since 1999 and entered into a partnership with UCC Search Next Edge Capital in 2015. This relationship has In addition to the one-month free trial for everyone, IFA Members receive an additional allowed them to pursue an aggressive growth First Corporate Solutions month to try the complete program. strategy focused on the following key initiatives: First Corporate Solutions is a full service public • The acquisition of A/R portfolios from Factors Finvoice records provider specializing in the research, retrieval and filing of public records nationwide looking to exit the industry Finvoice offers traditional factoring companies and internationally. Their services include and asset-based lenders a simple-to-use and Member benefit: Trailer fees for the life of industry standards such as UCC, lien and litiga- comprehensive software solution to help them the acquired accounts tion searching, UCC and corporate filing services, become a modern and efficient online lender. • Soliciting Factors to join the Liquid Capital nationwide registered agent coverage and Finvoice came out of a passion to help small network to gain access to additional capital, a real property title searching, as well as unique businesses who generate 67% of jobs and 50% robust range of working capital and trade finance solutions such as state and county account of the World’s GDP. products, extensive marketing and back office monitoring designed specifically for Factors. support Andrew Bertolina Phone: 800-406-1577 • www.ficoso.com Member benefit: Liquid will pay your IFA Phone: 310-951-0596 Email: [email protected] membership or Annual Conference registra- www.finvoice.com IFA members will receive a 10% discount off tion fee for the following year. IFA Member Benefit: Complimentary landing of the retail rates of their signature state and page review/optimization for digital conver- • ABL referrals from existing Factors who would county account monitoring product. sion. 15% discount on pricing for the first not normally fund this type of transaction year. Member Benefit: The referring Factor will earn an origination fee and have the oppor- HubTran tunity to participate in the funding. HubTran is the leading provider of back office IFA CALENDAR of Robert Thompson So automation technology for factoring compa- nies. HubTran’s SaaS platform streamlines Phone: 866-272-3704 invoice processing, document management, events 2018-2019 www.Liquidcapitalcorp.com and exception handling. Customers increase Email: [email protected] productivity 4X, reduce errors and increase October 15-16 Marketing capacity. HubTran’s innovative technology lever- ages Optical Character Recognition and Artificial Small Factors Meeting 50 Words LLC Intelligence to simplify back office work without Planet Hollywood, Las Vegas, NV 50 Words is a marketing outsource firm requiring massive investments of time in training for companies that either do not have a and integration. October 18-19 marketing department or that need to add Tinamarie Sulpizio Think Ahead Or Be Left Behind more manpower to their existing marketing Phone: 928-855-0170 • www.hubtran.com team. They serve as your dedicated marketing IFA Member Benefit: 1 week trial and waived Training Course department. setup/integration fees Planet Hollywood, Las Vegas, NV ® Phone: 610-631-5702 ProfitStars October 25-26 www.50wordsmarketing.com ProfitStars® is an industry-leading provider of IFA Member Benefits: IFA Members will portfolio management systems for commercial Construction Factoring receive five free hours of marketing services finance, and offers a common framework Training Course with the purchase of any marketing service. for factoring, asset-based lending, inventory (Offer to new clients only) finance, and lines of credit. Our dynamic Planet Hollywood, Las Vegas, NV Commercial Lending Center Suite™ incorporates Recruitment Agency all-digital loan origination, decisioning and October 30 Commercial Finance Consultants portfolio management workflows that save How Your Clients Record Their Established in 2002, CFC is the premier provider time, improve accuracy and improve the overall of human talent to the factoring industry. CFC’s borrowing experience. Factoring Transactions goal is to provide their clients with the best Phone: 205-972-8900, option 3 Webinar 1pm-2pm PDT available human capital and the most current www.profitstars.com industry information to assist in accomplishing IFA members will receive 10% off new November 14 their growth potential. ProfitStars lending solutions product purchase. For IFA members who are Factoring in the Staffing Industry Phone: 469-402-4000 • www.searchcf.com currently ProfitStars customers: Free Webinar 1pm-2pm PST Email: [email protected] one day FactorSoft refresher course, per IFA members will receive an additional year, at ProfitStars’ training facility in January 23-25, 2019 60 days added to the guarantee on all Birmingham, AL. placements. Presidents & Senior Tax Compliance Executives Meeting Tax Guard Tax Guard fills a critical gap in a commercial Casa Marina Key West, FL lender’s credit risk management toolset with

The Commercial Factor | OCTOBER 2018 31 Mergers & Acquisitions OCTOBER 2018

Why and How Banks Acquire Commercial Finance Groups Banks have become pretty good at selling widgets over the last decade. Due to competitive, technological and regulatory pressures, it is convenient (and possibly necessary) for bankers to build a business model around repeatable products—same financial terms, same loan documents, same operating processes over and over again. The bigger the factory, the cheaper you can make widgets, which is one reason the mega- banks have grown since the financial crisis of 2008.

By Aaron P. Graft

Commercial finance requires solu- TBK Bank, SSB was a small commu- Business Capital is approximately tions to be tailored to individual nity bank when we entered into $500 million in net funds employed. clients—the antithesis of making the commercial finance space in TBK Bank’s commercial finance widgets. When a bank enters into 2012. We had about $250 million portfolio—which includes factoring, commercial finance, they generally in assets when we purchased asset-based lending, equipment do so because of its attractive yields Advance Business Capital, LLC (n/k/a finance and premium finance—is now and the opportunity to expand Triumph Business Capital). At the approximately $1.3 billion in assets. product offerings to customers time, Triumph Business Capital had We have experienced tremendous and potential customers within its approximately $40 million in net growth the last six years. geographic footprint. funds employed. Today, TBK Bank is When we purchased Triumph $4.5 billion asset bank and Triumph Business Capital, we didn’t just

32 The Commercial Factor | OCTOBER 2018 crisis and are hungry for growth. opportunistic entry to market, or When we purchased Moreover, private equity firms consolidation), this approach has are flush with cash and are highly seen fewer transactions in recent Triumph Business motivated to put that capital to years. Sellers recognized the work. This bodes well for commer- premium of the platform and have Capital, we didn’t just cial finance companies looking to tended to market those businesses sell or to recycle capital. Because in that manner. acquire the assets these buyers generally don’t have Potential buyers of commercial the internal expertise to run the finance businesses have a few ways of the business. We business, the better valuations are to addresses their particular need, for operating companies rather than whether it’s a platform purchase, acquired the team, the asset or portfolio sales. The most bolt-on of specific attributes, or successful bidders know the space, purchase a portfolio of assets only. processes, the brand— have capital ready to deploy and While today’s higher valuations tend are willing to pay today’s market to favor the platform purchase, everything. premiums. different buyers may prefer a bolt-on Recently, Triumph Business Capital or asset purchase to satisfy their acquired the assets of Interstate strategic goals. In any case, thor- Capital Corporation (“ICC”) and ough due diligence of the people, acquire the assets of the busi- retained the company’s staff. This portfolio, and processes will serve ness. We acquired the team, the acquisition illustrates another buyers well. By matching the unique processes, the brand—everything. technique to expand presence in attributes of a commercial finance Prior to this acquisition, TBK Bank a commercial finance market. TBK business with the rigor and access to didn’t have the people, policies Bank knew the people, process, capital that larger institutions have, or procedures required to run a and its position in the market, and buyers can visualize and realize the successful factoring business. As we we felt it was a significant bolt-on potential of the combination. • thought about entering factoring acquisition to complement our through the acquisition of Triumph existing platform. The transaction Business Capital, the most impor- checked all of the boxes: ; 1) We had tant criteria for me was the quality of a high degree of respect for ICC’s Aaron P. Graft is the people who would become our leadership and brand presence; the Founder, Vice Chairman and team members. We would not have 2) Their operations, people and CEO of Triumph acquired Triumph Business Capital location added significant expertise and diversification; and 3). ICC was Bancorp, Inc. without the continuity of the senior (Nasdaq: TBK). He one of Triumph Business Capital’s leadership team and key staff. It was also serves as the Vice Chairman very important to align their interest primary competitors in transporta- and CEO of TBK Bank, SSB, the with the interest of the larger tion factoring, which moved us into Vice Chairman of Triumph Business institution. While we integrated a dominant position in the industry. Capital, and a Director of Triumph some back-office functions, we Since today’s market is more Insurance Group, Inc. Prior to kept Triumph Business Capital as a competitive than it was in 2012, establishing Triumph, Aaron served separate subsidiary and it maintains the premium paid for ICC’s assets as the Founder and President of Triumph Land and Capital significant operational indepen- was more than Triumph Business Management. He began his career dence to this day. That structure has Capital, but TBK Bank still expects to create significant value through this with Fulbright & Jaworski, LLP allowed Triumph Business Capital (now Norton Rose Fulbright LLP) acquisition. to grow and excel within the bank’s where he focused on distressed regulated environment, which is a A third and less prevalent method of loan workouts. Aaron received a very different outcome than many of acquiring commercial finance expo- Bachelor of Arts, Cum Laude, and the “bank acquires entrepreneurial sure would to be to purchase only a Juris Doctorate, Cum Laude, finance company and then destroys the “book of business”. For some of from Baylor University. He can be reached by email at agraft@ it” horror stories you might have the aforementioned reasons why tbkbank.com. heard. an intact platform is more valuable The world today is a different place to many would-be buyers (e.g. than it was in 2012. Banks have yield, diversification, expertise, largely recovered from the financial

The Commercial Factor | OCTOBER 2018 33 industry veteran you’ve closed the deal Continued from page 12 Continued from page 14

both community banks and Fintechs, Once the project was defined, we continuously used this model it behooves both potential Buyer brainstormed ideas to cover any to integrate many of the legacy and Seller to consider what concrete potential unidentified risks and how systems from the predecessor to strategies ensure future growth we could effectively overcome the White Oak’s systems. Most people and profitability. Also, Seller must risks. are keenly aware of the process consider which type of entity and The brainstorming process was that teams must execute on to what specific company it should immediately followed by the framing successfully consummate a merger choose as Buyer. Accordingly, Seller process. The framing process or acquisition transaction. However, must not only analyze carefully the discussed at a high level how we successful acquirers are keenly benefits of selling, but when is the were going to execute on the aware that once a deal is done the right time to sell? How should the implementation. work has just begun. Upon closing process be conducted and should your next buy-side transaction, seller utilize services of industry The final stage of the project plan- be certain to plan and set aside professionals during the process? ning process consists of creating a adequate resources to properly inte- With increasing competition in our detailed action plan which spells out grate the human capital and systems industry from both community who is responsible for each task and you obtain through the acquisition banks and Fintechs, it is essential when the task is due. process. The aforementioned plan- that potential buyers and sellers After completing our planning ning will contribute greatly toward a consider concrete strategies to stage, the team transitioned into successful acquisition. • ensure ongoing growth and profit- the project implementation stage. ability. Accordingly, it is in the During the implementation stage, interest of both buyers and sellers to: the project lead took an active role 1. Carefully analyze the benefits in managing the project to ensure it Kwesi Rogers is of a potential purchase/sale. remained on schedule. the President & 2. Determine the timing of the CEO of White Oak 1. What tasks are to be completed? Business Capital. sale in light of market dynamics. 2. Who is going to perform the tasks He has more 3. That Seller’s and Buyer’s and what resources will they require? than 25 years of objectives are relatively government contracting lending compatible. 3. Hold check-in meetings with regu- experience. Committed to giving larly frequency to ensure the project back to the business community, 4. If deemed advisable, engage remains on task. Kwesi serves as Chairman of the appropriate professional to 4. Discuss challenges. Small and Emerging Contractors facilitate the process. Advisory Forum (SECAF). He 5. Identify changes required to meet sits on the board of directors our stated objectives. of the Montgomery County Chamber of Commerce (MCCC) Upon completion of a project, we and the Fairfax County Chamber Allen E. Frederic, hold a project closing meeting. The Jr. is CEO, Managing of Commerce (FCCC). He is also project is officially declared closed Member and co- active in numerous professional founder of Republic when the recipient (IT, Operations, organizations, including the Business Credit Accounting, Underwriting) states International Factoring Association LLC, a commercial they have received the project and (IFA) and the Commercial Finance finance and factoring operation it has satisfactorily met its goals and Association. Kwesi holds an M.B.A. headquartered in New Orleans, objectives. Closing meetings also from George Mason University Louisiana with offices in Houston serve as a point of reflection for the and a B.A. from the University of the District of Columbia. He can and Chicago. Previously, Allen was team. This assists the team in under- CEO and founder of Gulf Coast be reached by phone at (301) Business Credit, the factoring standing where the project team 961-6522 or by email at krogers@ division of New Orleans-based flourished and where there might be whiteoakbc.com. Gulf Coast Bank & Trust Company room for improvement. where he served as CEO for 11 Over the past six months, we have years. He can be reached at [email protected].

34 The Commercial Factor | OCTOBER 2018 Great opportunities demand smart lending and customized solutions. Capital One® Financial Institutions Group provides businesses in the secured business credit space the capital and expertise to thrive.

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