Slow and Steady: Battaglia and Encina Business Credit — in the ABL Game for the Long Haul
Starting a new nonbank ABL is not for the faint of heart, says Encina Business Credit CEO Marty Battaglia. The 30-year ABL veteran spoke with ABF Journal editor Nadine Bonner about the challenges of starting a new business and the slow, sure future he envisions.
The average age of the holm oak is 400 years. This evergreen version of the oak tree grows in Spain, where it is prized for its slow-burning firewood. Unlike Americans, the Spaniards do not chop the holm oak down to burn its wood. Every few years, they prune the trees back and use the branches they cut off for firewood and charcoal. In Spanish, the holm oak is an encina.
The majestic tree with the slow-burning wood is an appropriate trademark for Marty Battaglia, CEO of Encina Business Credit. In an age when reputations are won and lost on Twitter and international business meetings are held via Skype, Battaglia still believes in the slow and steady method. Battaglia launched the ABL nonbank lending company in April with support from, appropriately, Oaktree Capital Management and Encina Business Partners, both in Los Angeles. Based in Chicago, Battaglia has spent the past few months building his staff and closing ABL deals, like the $20 million revolver it provided last month to a Chicago scrap dealer.
Battaglia says he is pleased with the way the business is moving, adding that he is looking forward to slow and steady growth.
“We are in this for the long term,” he says. “We’re not a flash in the pan.”
“We’re looking to grow slowly,” he adds. “If we have $1 billion out in seven years, it would be great.”
Battaglia is not a flash in the pan either. A 30-year veteran of the ABL business, he began his career as a corporate accountant. When he was offered the opportunity to become a field examiner, he was intrigued. “That had a different twist to it,” he recalls. He never looked back. He rose through the ABL ranks and did some marketing along the way, which comes in handy in his new venture.
Not For the Faint of Heart
Battaglia had a hand at developing ABL divisions at LaSalle Bank, Deloitte and Fidelity Business, where he served as president before opening Encina. Like most entrepreneurs, he dreamed of starting his own company. He had been trying to put all the pieces together since 2007, but there were trials and tribulations along the way. “It is difficult to keep your core group of staff together while you arrange the capital,” he says ruefully.
He had his core staff on board when the Great Recession hit, causing capital to dry up while placing a temporary dent in his plans. But he persevered. “It’s not for the faint of heart,” he says of the challenge to launch an ABL business on a sound footing.
“I had gone down the path with another sponsor,” he says. “Just as I started to get focused on how I wanted to do things, they wanted some things that made me uncomfortable.”
In 2015 he met Andy Salter, founder and CEO of Encina Capital Partners and former vice president of Oaktree Capital Management and, according to Battaglia, “all the stars aligned.” Encina Business Credit and Oaktree teamed up to launch the new company that bore their names in two languages.
“When I met Andy, there was a meeting of the minds,” Battaglia says. “Our thinking aligned. You have to have partners who understand that this is a messy business and understand the stresses that exist in this side of the market.”
“Oaktree,” he says of his sponsor, “is able to enter the lower and middle market. They are very sharp people.”
Building a National Reputation
Salter is chairman of the Encina Business Credit board of directors, a group that Battaglia credits with helping the company build its portfolio and supporting its front-end efforts. William Brasser, a former vice president at GE Capital Finance and current advisor to Encina Business Capital, and Paul Bossidy, former president and CEO of GE Commercial Equipment Finance and current president and CEO of Clayton Holdings, also sit on the board with Jason Wolff, former president of Frontier Capital Partners and current chief investment officer at Encina Capital Partners.
Battaglia also has been building his professional team, and Encina is opening offices across the country. Janet Klinger, vice president of operations, joined the company from MB Financial, and is based in Chicago. Two other GE Financial veterans, Tom Sullivan and Sean Sheehan, joined as chief credit officer and managing director, respectively. Sullivan is based in Chicago, and Sheehan is in Stamford, CT. Bill Kearney, based in Atlanta, launched the retail section. Jim Kelly joined Encina from Veritas and is leading originations in the Midwest, based in St. Louis. Troy Allen will be handling the Southwest from Houston.
“Now that we have the front end in place and we’re doing deals, we’re looking to add a full-time underwriter,” Battaglia says.
Battaglia says the company’s goal is to be a national player in the ABL market. However, before opening the doors, he anticipated being in the lower end of the market and is surprised at the size of the deals Encina has been closing since April.
“We are doing larger transactions than I anticipated. Starting at $5 million and going up to $25 to $50 million. We didn’t plan on doing big deals, but we’re seeing opportunities,” he admits. “We are not going to abandon the $5 million deals. We have a middle-market focus, a collateral focus.”
Looking around, he observes “the ABL market has morphed in the last 10 or 15 years, almost to the point that they look like commercial term loans. We’re sticking with true collateral. We’re not playing where the banks are playing.”
A Solution for Banks
But what about banks like Sterling and Blue Hills, which are opening their own ABL divisions. How will that impact nonbank lenders like Encina?
Battaglia brushes that aside.
“If you look at the banks, the regulatory environment has changed. The banks can’t keep these types of deals on their books. Banks, especially community banks, don’t want to have to deal with DIP, bankruptcy and restructuring. They don’t want to close a local business and put people out of work. In ABL we deal with distressed businesses, and sometimes those things happen.”
On the contrary, he says, “We are a solution for the banks. As they face companies going through distress, we are the solution.” This has proven to be true as Encina has already closed deals that resulted from those bank referrals.
“Our goal is to be the ABL lender across the nation,” he says. “We are able to do larger transactions, and we’re prepared to adapt as the market changes. It could be energy. It could be commodities. We’re seeing a fair amount of retail. Next year, it could be different. We have a lot of market coverage.”
Does he anticipate any changes because of Brexit?
“It’s going to have an impact on the UK. We can look at what happened in Hong Kong in ‘99 and get an idea of what is going to happen,” he says, referring to the end of the UK’s 99-year lease on Hong Kong, the financial center of Asia at the time, and its subsequent return to Chinese rule.
“London is the hub of the financial world,” he says. “I think that will change. But I don’t think it will have that much of an impact on lenders here. We’re still trying to see how we can get things done down in Mexico.”
Looking back on his career, which has taken him to Michigan and Canada as the companies he worked for were bought and merged, he says, “It’s been a lot of fun.”
Now, Battaglia looks forward to a slow, steady path at Encina. “This is my last shot at doing this,” he says, and he may mean it. But he could be like those Spanish encinas, just lopping off a couple of branches and moving on.