In the 1970s and 1980s, it was Japan that was investing and lending to America.
Now, it’s the Chinese.
brought to bear on the worst financial
crisis since The Great Depression. An
unprecedented amount of liquidity was
injected into the financial system.
And the Great Recession, as pundits
have named it, is finally showing signs
of recovery. The financial markets are
unfreezing, although some sectors are
much more vibrant and robust than others.
But the Great Recession has also caused
The Great Consolidation in the commercial
finance marketplace. Some of America’s
legacy marquee names in commercial
finance are sitting on the sidelines or have
disappeared altogether. And some new
players have emerged.
Dusting Off Their Playbooks
Asset-based lenders of all sizes are dusting
off their playbooks. The market for good
credits is showing signs of life. The next
two to three years should be a golden time
for asset- based lenders.
The most robust part of the asset-based lending (ABL) market is the $50
million-to-$300 million segment, where the
borrower has access to private equity, the
high-yield market or the public equity markets. The liquidity engineered by the U.S.
government is kick-starting this sector of
the market. Asset-based deals of up to $300
million are happening on a club basis in
today’s marketplace. The oxygen starts to
get very thin for anything above that level
for deals that are not gold-plated. The club
is typically tightly knit, and lenders dictate
pricing and structure rather than the borrower or the borrower’s investment bank.
Gone are the days of a “hog-call” put out by
the borrower’s investment bank, except in
those cases where the deal is gold-plated.
The Great Consolidation in the com-
mercial finance sector has left few players
in the $2 million-to-$7.5 million deal range,
according to Michael Coiley, managing
director at Ram Capital in New York City.
“The ABL platforms of most banks want to
have opening borrowings of $10 million
and up,” said Coiley, “which leaves much of
the lower middle market up for grabs.”
“For many middle-market technology
companies, the U.S. technology sector has
a huge comparative advantage over the
rest of the world and is poised to grow
The investment arms of large Chinese and Taiwanese technology companies are pumping money into chip, software and technology-services companies in order to gain the latest technology. Some Asian
manufacturers have proven they’re more aggressive than the entrenched
Silicon Valley venture capitalists to back some risky ventures.
In October 2009, Quanta, one of the largest contract manufacturers of
laptops for brands such as Dell, invested $10 million in Tilera, a chip start-up
in San Jose, CA, that is designing a radical computer processor. Quanta also
invested $16 million in Canesta, another chip maker based in Silicon Valley,
whose product changes television stations by simply waving a hand. ACER
computers has invested in DeviceVM, whose software lets computers boot up in
about five seconds, compared to the minutes many computers can take to start.
For entrepreneurs in America, the money flowing from China and Taiwan is a blessing. Not only do the entrepreneurs get much-needed capital,
but they also get access to some world-class manufacturing and management best practices that can fast-forward them through their growth curves.
However, this presents some risks for America’s top technology companies,
which could lose a vital window on top innovations. Asian manufacturers
could wrestle away America’s edge in technology research and design.
The bigger picture is this: China’s GDP growth doubled in the space of 26
years compared to a fourfold increase in the British Empire’s GDP in 70 years.
The former has been China’s achievement between 1978 and 2004; the latter
was the British Empire’s between 1830 and 1900, the height of the Industrial
Revolution. Our GDP was more than eight times that of China at the beginning
of this decade — now it is barely four times larger. Many pundits predict that
China will overtake America as soon as 2027, less than two decades away.
Just why then, beginning around 1500, did the less populous and apparently
backward Western Europe and America come to dominate the rest of the world,
including the more populous and more sophisticated societies of the East?
Much of the answer is in the corporate-financing innovations that started in the
rough-and-tumble Amsterdam exchanges in the 1600s, then spread throughout
Europe and the United States. Are we now seeing the end of Western Europe
and America’s 500-year ascendency propelled by the Scientific Revolution, the
Industrial Revolution and now the Digital Revolution? How long can the globe’s
largest borrower remain the world’s biggest power? Will financial innovation
and risk-taking allow China to overtake the United States by this mid-century?
dramatically,” according to Minhas Mo-
hamed, CEO of MMV Financial in Palo Alto,
CA. “Technology companies, as a whole,
operate with moderate debt and, as such,
are positioned well to take advantage of
the credit crisis.”
In contrast, caution is the watchword
these days in middle-market retail finance.
Financing a “story” retailer with borrowing
needs of $5 million is almost impossible.
Only the larger retail deals are getting
New players in the ABL world include
TD Bank, Flagstar Bank in Jackson, MI, New
Resource Bank in California, Cole Taylor
Business Capital and The PrivateBank in
Chicago. Other banks that are ramping
up their ABL in the C&I sector include
Regions Bank, Capital One, CapitalSource,
M&T Bank and Tri-State Bank. RBS Citizens
recently established a restructuring ABL
group. According to Leonard Lee Podair
at Hahn & Hessen LLP in New York City,
“A fair number of new players, mostly
midsized and regional banks, are entering
the ABL fray. In my workouts, at least one
out of three refinancing proposals I see is
usually from one of these new names. As
the secondary loan market has become
less frothy, lenders are approaching new fi-
nancing opportunities with more interest.”
“We see private equity shops becoming
more active in doing synergistic acquisi-
tions, such as substantial add-ons to their