At the end of 2011, while others may have been signing “Auld Lang Syne” and waxing nostalgic about days gone by, Jeffrey Goldrich and his team at North Mill Capital had their sites fixed squarely on the future by acquiring PrinSource Capital on December 30. Not only did the deal expand Princeton, NJ-based North Mill’s geographic footprint into the upper Midwest, the acquisition enabled the company to add factoring services to its product offerings.
North Mill officially opened for business in October 2010, but it started as a business plan in 2008 at the dawn of the Great Recession, after Goldrich left Business Alliance Capital Corporation, a company he started with Ted Kompa in 1995, which was sold to Sovereign Bank in 2005. Goldrich says he had hoped to get the new venture up and running in a short period of time during the crisis when there were only a few competitors in the space that had liquidity. However, he faced a few obstacles: honoring a restrictive covenant, raising equity and obtaining the right amount of bank support during that period.
Goldrich explains, “Because of the crisis it was difficult to get the equity and bank support. Then we came across a portfolio in New York for sale, Summa Capital, which was a small commercial finance company that had been in business for 30 years. We were fortunate to find it. We then found Monitor Clipper Partners and ALDA Capital as equity backers, and we were fortunate to have a close relationship with IDB Bank in New York, BMO Harris, CapitalOne and other banks that put a credit facility together for us. It all started to gel. After a number of months of organizing all of those agreements, we started in October 2010 with the initial Summa portfolio just doing asset-based loans.”
In addition to Goldrich, North Mill’s founders, all Bank Alliance Capital alums, include Daniel Tortoriello, EVP/chief operating officer ; Stephen Carroll, EVP/chief financial officer; Betty Freire, EVP/chief credit officer; and Patti Kotusky, SVP/operations manager.
He adds, “The company would not exist without each of these founding people. A unique aspect is that we have a management team that has put up a significant amount of money, so the initial group that got North Mill Capital started are real stakeholders in this company. Each one started from day one and is responsible for getting the company to where it is today, including acquiring the Summa portfolio, fostering organic growth and acquiring PrinSource. It is also unique that we have all been working together for some many years. We are used to each other.”
Enhancing Product Offerings, Expanding Footprint
When Goldrich and his team started North Mill, the company consisted of six people and had 18 loans. Today it has 31 employees, more than 100 client relationships, business in 16 states and a six-bank credit facility.
Although North Mill has been enjoying organic growth since its inception, the company’s leadership was interested in adding factoring to complement its asset-based lending product offerings. They also had a specific interest in the upper Midwest, a market they consider underserved and where North Mill could make an impact. However, they weren’t interested in simply placing a salesperson in Minneapolis or Milwaukee. When they found the PrinSource operation through Milestone Advisors, Goldrich and his team were attracted by its experienced personnel, thoughtful underwriting practices, strong sales force with deep referral contacts in that part of the country and the companies’ similar cultures.
“PrinSource wasn’t just buying receivables blindly. It was underwriting the borrowers. There was an effort to understand the borrower’s business and why it believed these prospective clients were going to stay in business. PrinSource shared North Mill’s approach to underwriting prospective borrowers, building a quality portfolio, managing relationships, fostering the sales culture and navigating the marketplace,” Goldrich notes.
Headquartered in Minneapolis with an office in Milwaukee, PrinSource had been providing factoring and asset-based lending for more than 15 years to small- to medium-sized businesses in the Minnesota, Wisconsin and Illinois markets. To finance its acquisition, North Mill received an additional equity investment from its current shareholders, led by Monitor Clipper Partners, and a material increase in its debt credit facility led by IDB Bank of New York supported by a syndicate of five participating banks.
“Cultural fit is the hardest thing. Doing due diligence on a company is fairly scientific. You look at the portfolio, and you like some of it and you don’t like others, and others are on the fence. What is more of an art form is seeing if the companies and people can coexist. That’s what we saw in PrinSource,” he added.
To balance North Mill’s factoring platform, the company added industry experts Bill Blenderman, in a senior business development role, and Tom Siska, in a credit role, as senior vice presidents in the East Coast office.
Moving forward, Goldrich says North Mill has ambitious goals to organically grow its business, look for new geographic markets and explore other specialty finance businesses to enter. Such growth could include further acquisitions or mean backing a team that wants to start a de novo operation. “We’re staying very focused on growing North Mill Capital safely with our two platforms and continuing to explore new geographic markets and products,” he remarks.
In the Marketplace
North Mill provides asset-based loans and factoring solutions for borrowers seeking financing ranging from $200,000 to $10 million and works with participating lenders for larger transactions. It finances service companies, manufacturers and wholesale distributors. The company’s primary business is to finance accounts receivable, inventory and machinery and equipment, but it will consider other assets and often assists companies in obtaining financing to supplement North Mill’s asset-based loans.
“Sometimes our role is to make a loan to a company that can’t get bank financing. Sometimes we’re a finance company to a company that can’t get enough bank financing. And some of our clients have bank options, but they come to us because we typically are less focused on financial covenants. Many borrowers like the non-regulated credit environment of a credit finance company. We are an alternative to bank financing. We have clients that are bankable but are here because they get more availability with fewer credit restrictions than they’d have at a bank. We have factoring clients here that graduate to asset-based lending. If we have an asset-based borrower that has struggled, it might go to factoring. We try very hard to maintain the relationship,” Goldrich points out.
North Mill partners with banks at both of its offices and has a list of banks that have bought participations in its credit facilities. “Some of them are, relative to what we do, large credit facilities, and they buy participating interest, banks and other finance companies. And others are small facilities, where the banks want to have a relationship with the borrower. They refer business to us and they maintain participating interest in the loan. We have a very active bank participation program,” he adds.
The market is getting more competitive for North Mill, as borrowers have more options when seeking financing. Times have changed and the number of proposal letters from competing asset-based lending and factoring companies has increased. Moreover, pricing and structure for small borrowers that have the assets and ability to borrow on an asset-based arrangement have become increasingly competitive. The market for companies that cannot obtain sufficient and, in some cases, any bank credit has improved for borrowers. In addition, Goldrich is seeing increasing bank activity in North Mill’s space.
“Commercial finance companies, factoring companies and now banks are proposing aggressively. What we don’t know yet is if the banks are going to be able to deliver on what they are proposing. We’ve seen a very recent strong surge of bank proposal letters that seem aggressive compared to what the banks have been doing for the past three years on commercial finance transactions. I don’t know if they will ultimately get there when they get to their final approval process. There are very good commercial finance and factoring companies in every market in just about every state in which we do business. We rarely have an exclusive look at prospects, and we know we need to propose our best deal to win the business. We have to work hard to win it. There are a lot of very smart, healthy competitors out there,” he explains.
As a result from the increased competition, Goldrich has seen pricing go down and credit standards become more liberal. He adds, “The reality is that the survivors of this kind of business are the companies that hold to their standards and don’t just react to competition. Having said that, when we send out a proposal letter, we propose what we believe we can subject to our diligence. But, if we see things that we aren’t comfortable with, we don’t pursue it. While it’s an aggressive market that inevitably leads to looser structure and lower prices, we can only do what we can do. In the marketplace we have become, in a short period of time, a formidable competitor on both asset-based lending and factoring.”
Lisa M. Goetz is an associate editor of ABF Journal.