In 2009, when FirstMerit Bank wanted to start its own ABL business, the bank called on industry veteran Doug Winget to lead the new endeavor. Soon after, FirstMerit acquired substantially all of the Midwest asset-based loans from St. Louis-based First Bank Business Capital. In turn, Winget brought along his management team from National City Business Credit, and FirstMerit Bank Business Credit (FMBBC) was formed.
Winget clearly was the right choice for the job. He began working in asset-based lending in 1994 when he moved from commercial lending at PNC to learn the ABL business at National Bank of Canada, one of the few asset-based lenders at the time. Four years later, PNC was starting an ABL group, PNC Business Credit, and Winget returned to start the Cleveland office. In 2004, when National City was reinventing its ABL group, he joined David Goodall — now executive vice president of commercial banking at FirstMerit — to start National City Business Credit. Both Goodall and Winget joined FirstMerit in 2009. PNC Financial Services completed its $3.9 billion deal to acquire National City Corporation on the last day of 2008.
Recalling his work at National City, Winget says, “We started with eight people at National City, one office in Cleveland, three direct agented deals and about $800 million in commitments. We grew it from 2004 to 2008, and at the end of 2008 there were 12 offices and $7 billion in commitments. Much of the FirstMerit team has previously worked together at various asset-based lending institutions, such as my heads of portfolio, new business, operations and field exam. The group as a whole is made up of people from all different institutions and backgrounds.”
Winget joined FirstMerit in March 2009 specifically to start FMBBC. Prior to his arrival, FirstMerit provided collateral support of field exam services for the commercial lending group, but it did not have a dedicated ABL group. When he started, there were approximately ten people performing collateral support and field exam work, and now FMBBC has 35 people in seven cities: Cleveland, Akron, Cincinnati, Pittsburgh, Indianapolis, Chicago and St. Louis. FMBBC’s management team is based in Akron, OH, where FirstMerit Corporation, a $14.1 billion diversified financial services company, is headquartered. The geographical footprint of FMBBC is primarily the Midwest, spreading from Minneapolis to St. Louis, western Pennsylvania and New York, and into Tennessee.
“At FirstMerit our strategy is to be the premier middle-market ABL shop in the Midwest, and we’ve had great success since we started. Since 2009 we have grown to 70 customers, and we have originated and closed on 50 of those in the past two years. The Midwest works well for us; it’s one of the best ABL markets because of the concentration of manufacturing and wholesale companies,” Winget explains.
FMBBC provides asset-based lending to a range of business clients with sales from $10 million to more than $500 million. Aggregate credit facilities managed start at $5 million, with the largest commitment pushing $50 million.
“We don’t specialize in any industries. We specialize in asset-based lending, which lends itself to certain industries more than others. Our portfolio is 50% manufacturing, 20% wholesale, 20% metals and the other 10% is service and finance,” Winget notes.
Launching During the Recession
Despite his success in the industry, Winget faced a new challenge in starting FMBBC — launching an ABL business in the worst recession since the Great Depression. Nonetheless, results were positive for existing FirstMerit clients that turned to the ABL side for guidance, as well as for new customers and the budding FMBBC itself.
“It’s very interesting; I started right when the economy was at its worst, the end of first quarter 2009. We came in and took certain customers that were within the bank and kept them within FirstMerit as part of our strategy. We were able to structure an asset-based lending alternative. That was part of our initial success. What we have found is that the customers have done the right thing. Middle-market companies almost on the whole cut costs, closed plants and did what they had to do to right size the costs to the revenues. And I’d say with that, our portfolio is as clean as ever, given the economy has righted itself. It’s certainly not on pace with what it was in 2006 and 2007, but it’s strong enough that these companies have cut costs and done the right things, and we have a very clean portfolio,” he explains.
Through May 2011 FMBBC closed seven deals and about $110 million in commitments to date. In the upcoming 45 days FMBBC has another seven deals and roughly $100 million in commitments that are under engagement.
“In the first quarter of 2011 it was a little slow. I’ve seen that in the past two years, the first quarter has been slower. The pace really picked up in the second quarter and our pipeline now is as strong as it has ever been,” Winget says.
With the improving economy comes an increasingly competitive market. Winget notes that commercial lenders are becoming more competitive, inching into ABL space with their structures, and that other asset-based lenders are becoming more aggressive both in pricing and structure.
He adds, “We are on a pace in that we are winning about 50% of our letters, which is very, very good. If you look at it historically, lending is kind of like baseball. If you are hitting in the 300s you are doing well, and we’ve been winning half of our letters because of the strength of our institution. FirstMerit is one of the strongest banks in the country, so we can go in with a strong message to sell, combined with the strength of our very experienced group, with many of us having worked together in the past. Also, our management structure and credit decision-making are very flat.”
Part of FMBBC’s strategy is to serve as an advisor when building client relationships. Instead of seeking only credits that fit the ABL structure such as tough turnarounds, emerging bankruptcies and DIP financing, the group assumes the role of advisor and reaches into middle-market companies that are looking for lending alternatives.
Winget explains, “One thing asset-based lending brings is an alternative to commercial lending, and with that more availability, fewer financial covenants and generally no personal guaranty. What we like to do is go out and be very consultative and an advisor to the company. If the company is strong enough and has a balance sheet and can choose the path and structure that it wants, we like to go out with a consultative approach and say, ‘You can choose an asset-based structure, which will give you these characteristics and these benefits, or you can choose a commercial deal, which will give you these benefits, but will have more covenants and likely a personal guaranty, but you won’t have the amount of collateral reporting.”
With FMBBC’s success comes continued expansion. The group recently added two new people — one to develop business in Indianapolis, a new market, and one to grow FMBBC’s presence in Chicago.
“I would say that the rest of this year looks strong. The M&A market in the middle market has not picked up to the pace that it was in 2005, 2006 and 2007, so that will give us more opportunities. We just opened up in Indianapolis, have a new person in Chicago, and will look to push into other Midwest markets as we find people,” Winget says.
From Accountant to Asset-Based Lender
After facing and conquering many challenges in the ABL world, Winget still finds the work exciting. He started in accounting, then after a stint in banking he eventually was drawn into asset-based lending, where he utilizes the meticulous skills he developed as an auditor.
He explains, “It’s a more interesting and fun side of lending. It’s a quicker pace. Especially in the middle market, where you find more complicated transactions and more complicated stories. I find it more challenging. My background is accounting. I started at Arthur Andersen, and I taught accounting at Ohio State as a teaching associate when I was at the university. ABL relies upon people who have the knowledge to go deeper into the balance sheet and collateral than your typical commercial lender.”
Winget notes that asset-based lending in general has become more accepted in the market. It is seen now more as an alternative to lending and not just as a last resort, and with that shift in judgment, the industry has expanded in the middle market, especially the lower end of the middle market. Importantly, asset-based lending helps clients to become more efficient and pay attention to their balance sheets, according to Winget.
“ABL has its advantages because it focuses companies on the right thing, which is efficiency, and often times it can be a better structure for the company and its owner who can rely upon the collateral for repayment to us. Asset-based lending makes companies concentrate on working capital with strong reporting. And that’s something we drive home with our borrowers,” Winget explains.
Lisa M. Goetz is an associate editor of ABF Journal.