Dealing in English: The ABL’s Guide to Living in London
Debbie Habib, global market head for FGI Finance, discusses life as an American in the UK’s growing ABL industry. With a much younger and less developed market than the U.S., Habib relays the challenges and benefits of being a forerunner in a burgeoning market.
Before I moved to London, I had a very clear picture of what I thought the city would be like: a sprawling, rainy place with a drastic juxtaposition of new and old architecture, friendly taxi drivers with cockney accents, and a multitude of pubs with frothy, warm beer spewing from the taps. When I actually arrived, I came to find the mental image I had created was entirely accurate. Sunny skies are a rare and celebrated occurrence. Taxi drivers become incredibly chatty when they hear your American accent. And, of course, everyone goes to the local pub at the end of the work day.
When I committed to moving to the UK to open FGI’s first European office in January 2011, I had little knowledge as to how the British conduct business or how my day-to-day would change. Upon making the transition, not only did I learn the British way of doing business is different, I also learned the ABL market I was now exploring was in many ways much younger and less developed than the highly competitive and mature market found in the U.S. However, this was not a negative realization. What I saw before my eyes was a business landscape with great potential, which soon would become a bull’s-eye target for the most prominent American asset-based lenders.
It’s safe to say some of the customs of a business development professional in London are pretty lavish compared to what we are used to in the U.S. I often found myself replacing my typical American business lunch of salad and an iced tea with a three-course meal topped with a bottle of wine and a concluding glass of port. It isn’t strange to invite your client and his wife to afternoon tea at Claridge’s to celebrate a closed deal. Networking events are usually black-tie dinners with dancing until the wee hours of the morning.
The Brits are old school in every sense. To strike a deal, they require doing business face-to-face. They need to see the white of your eyes before signing on the dotted line. Almost all negotiations are done upfront and can take a great deal of time. Days are often spent traversing the country by train for hours to see a prospect and prove your interest. However, once the prospect commits, a formidable trust is formed.
Historically, the SME market has relied on overdraft facilities or invoice discounting for its credit needs. Most of the time this funding was sourced from the UK clearing banks as borrowers, who chose to rely on their lifelong banks to provide funding as they are equipped with the largest invoice discounting platforms in the country. To come from a foreign bank or lending institution in itself requires time with the prospect to build credibility. Until recent years, ABL was utilized only in distressed situations. Groups such as Burdale made names for themselves by providing funding against very challenging credits, sometimes with highly newsworthy clients. Some American bank–owned ABL groups had small platforms in the UK only to support their U.S. borrowers, but times have changed.
I noticed a ripple effect through the market ignited when PNC acquired KBC’s ABL group in late 2010. It was startling to see a regional American bank with virtually no international presence make a statement of that magnitude. Soon after, Wells Fargo followed suit with the acquisition of Burdale. Bank of America hired well-known local ABL professionals to sell its cross-border ABL product. GE Capital, which already had a major invoice discounting practice for years, also expanded its ABL practice. While I was once the lone American trolling the ABFA (Asset Based Finance Association) networking events, it did not take long before I was accompanied by other ex-patfriends, who were there with the goal of solidifying their places in the market.
Clearing banks deserve credit for developing their ABL platforms as well. For years ABL was a bolt-on product to their invoice discounting offering. Now groups such as RBS have outright ABL teams, with a high volume of deal completion getting attention from the leaders at the top of the bank.
All of this competition, from both domestic and foreign lenders, is what the UK ABL market needs to fuel growth. Influence from American lenders will increase knowledge and awareness throughout the country, and will give those with more market share comfort in disseminating the product.
Every country in Europe is undergoing its own banking reorganization, all of which is happening at a different pace. Although factoring is common in most European countries, the concept of ABL is not fully understood by most banking professionals, mainly because there is no adequate legal infrastructure to support it. However, with Basel III legislation coming into play, naturally ABL is going to become a logical means of providing financing. A few factoring groups in Europe are utilizing their platforms to roll out an ABL product. GE Capital, for instance, has major factoring practices in Germany and France, which are now serving as the testing ground for its ABL development.
The UK as a market is serving as a springboard for American lenders to enter Europe. Their goal is to develop a pan-European offering for middle-market borrowers. This can and will be achieved as the volume of deals completed increases, and success is seen by both European and American lenders alike.
For an asset-based lender, the UK is an exciting place to be. However, as with any international relocation, you should be prepared to speak a new language. You will no longer stand in a “line” — you will stand in a “queue.” At work, you will not be lending on “inventory” — you will be advancing against “stock.” Be prepared to educate your colleagues and prospects. And more importantly, don’t be discouraged if you don’t understand British humor right away. Just enjoy your glass of lunchtime Sancerre, and bring your “brolly” wherever you go.