Articles
Bibby's Army Continues Its Overseas March
As featured in Business Money International May/June 2006
Anyone familiar with the invoice finance industry will no doubt have heard of the Bibby Financial Services Group (BFS), a dynamic group of companies delivering global financial solutions to businesses.
David Robertson, Chief Executive, explains
The last five years have proved extremely successful for BFS, the UK's largest and most successful independent factoring provider.
Fantastic growth has been achieved over the years but, as predicted, the UK market has matured and become more competitive. This presents new opportunities. We look at the market now with a fresh perspective and, using the ever-changing world as our backdrop, adapt quickly to market challenges, continually evolving our product offering to ensure we retain our leading industry position.
We have no intention of standing still and have, despite the tough market conditions, over the last five years grown into a formidable global force in the invoice finance market. Our aggressive growth strategy for the future will see us continually exploring new opportunities to expand our offering overseas.
The Vision
Our vision for the next 10 years focuses on long-term growth and a desire to be a global provider of services to small and medium-sized businesses.
We have an ambitious target of expanding our presence into 10 countries by 2014.
These markets are our future and, enabled by technology, will become the domestic market for us all to operate in. The challenge of trading abroad is not being taken lightly - any expansion overseas needs thorough researching of the market, identification of the opportunities and recognition of the challenges.
Recruiting and building a great team is key to the success of any new venture. At BFS we recruit passionate individuals who can really make a difference. We want employees to stand up and make their views heard; if we don't listen we are throwing away insight from the people with valuable first-hand experience.
Our Overseas March
We started our journey into overseas markets five years ago and are one of the first in our field to take the plunge and set up a number of overseas operations. In fact, we were the first UK factoring company to enter the USA, Australia and Poland - quite an achievement for an independent.
We first put our toe in the water in the USA in 2001. However, opportunities existed closer to home in Europe and so we began the search for appropriate options - acquiring a management team to start a greenfield site or identifying a company ripe for acquisition. Since 2002, BFS has launched companies in a variety of growth markets across Europe and further afield, including the USA, Australia, Poland, France and Ireland, proving that our global march has truly begun.
But what's it like setting up in a new country - my colleagues will explain what life is really like on the ground.
Europe - France
Francois Rossignol, Director France, talks us through the trials and tribulations of BFS's entry into the French market.
Launching France back in 2005 marked a turning point in the French financial arena. For the first time in more than 30 years a non-bank owned or top French listed company was granted a license to operate a factoring company in France. But it hasn't been plain sailing since we started investigating the opportunity of setting up a factoring operation in Lyon, France three years ago.
Although factoring is a well-known funding alternative among the 2.5 million small and medium-sized enterprises in France, they are served by a "Parisian elite" of finance houses.
The French finance market is heavily regulated so, in order to set up, we had to find a European bank to be a minority shareholder of the business.
As an independent factor we were reluctant to set up a company with a bank as a shareholder - it is important for us to retain our autonomy and flexibility in order to continue delivering an individual-based approach to clients. Just when we thought it was not going to be a viable option the financial authorities lost a case at the European court of Luxembourg and this proved to be the opening we were looking for.
We worked with our legal adviser and a well respected organization in the French financial market, who was prepared to stand as a champion for our cause, to prepare a pitch to the regulator and it was here that it was decided we no longer required a bank as a minority shareholder and new conditions were imposed which were tough - but workable.
A year later, in 2005 we eventually launched our French company, providing businesses in France with specialist factoring and export factoring solutions. The ability to create a bespoke offering in Europe replicates what has proven to be a successful business model for Bibby Financial Services in the UK.
One year on, I am delighted to report that despite the initial challenges we have now opened up two new satellite offices in Paris and Aix En Provence, which enables us to cover this important financial centre.
With 20 staff and 55 clients, we are truly establishing ourselves as a key player in the French market and I am confident that it will not stop there with further expansion sure to take place over the coming years.
Ireland
Lisa Harvey, Head of Operations for Ireland gives an update from Dublin.
After testing the Irish waters some 15 months ago with the launch of an Irish sales office we were overwhelmed by the demand that we have had for our factoring and export factoring services.
We have always believed that the Irish market was ripe for an alternative provider and the increasing demand that we are seeing from Irish intermediaries and the small business community proves this. As a result of this demand our Dublin company opened on 5 May 2006, assisting us in servicing our Irish clients at a local level.
We have already built up a strong portfolio of 30 clients and a team of 9 employees, and have ambitious growth plans for the coming months.
Educating the market about the benefits of factoring plays a big part of our strategy - invoice finance remains a little used product in Ireland, indeed the market reflects the UK's some eight years ago.
With very few independents in the market, the Irish business community has historically relied on the banks to meet its funding requirements. But I am confident that as BFS makes its mark on the Irish market this will change and some exciting growth opportunities will present themselves.
Poland
Krzysztof Kuniewicz, Director of Bibby Factors Polska talks us through Bibby's development in Poland.
2001 was the first time the group launched a new company outside the UK; here in Warsaw, Poland BFS set up the first UK-owned factoring company, Bibby Factors Polska.
Many people often ask me why BFS chose Poland. Well, why not! It's a fast-growing, cosmopolitan country and has a distinct desire for success - there were, and still are, some excellent opportunities to be explored.
In 2001, there were only a handful of, mostly bank-owned factors servicing the market. However, today, nine independents offer sole factoring services and approximately 30 banks and small financial companies offer a portfolio of solutions, which also include factoring.
When we originally entered the market, which is similar in size to the UK's, we only intended to offer a recourse factoring solution, but with a slight Polish twist. However, it quickly became clear that this product alone would be insufficient to become a serious player within the market and so our selective factoring product was launched.
Demand for export factoring was also on the increase as confidence among Polish SMEs grew, so we expanded our product portfolio to meet this demand. Throughout 2004 we saw Polish exports grow significantly and, as a result, a large demand for this service still remains with export factoring now accounting for 10% of total factoring volume.
The factoring market has also been experiencing a period of growth, with the volume of debts purchased increasing to €2.9bn in 2004, an annual growth year-on-year of 16.5%. The factoring sector now accounts for 1.4% of GDP (2004) and it's anticipated we will see further steady growth in line with the Polish economy.
We have experienced exciting growth across the business with a 77% increase in client numbers, as a result of which we launched our second Polish company in Katowice, which also enables us to service some of our clients on a more local level.
With further growth expected in the market, we will certainly be looking to make the most of any opportunities that present themselves, whether setting up a further company or increasing our portfolio of products. Whatever it may be, the future certainly looks bright for both Polish SMEs and BFS as we head into the second half of the year.
USA
Trevor Patching, CEO Bibby Financial Services (Holdings), Inc., talks us through the US market and
how Bibby has been making a name for itself in the States.
North America is seen as the land of opportunity for many UK businesses and for BFS it was no different. Since our first company opened in Florida back in 2001, we have truly been on a mission to grow.
As CEO in the US, my main role is to replicate the successful BFS model - developing a network of autonomous regional factoring companies as well as aggressively marketing our international capabilities. Our strategy is simple; we aim to acquire existing factoring companies or to start greenfield sites around proven management teams.
In just four years we have truly made progress towards this vision, with five companies now established across the United States and Canada.
Here's a brief overview of our expansion in the United States:
2001 - Our first acquisition took place at the latter end of 2001 when, via the acquisition of an existing player in the market, Source One Financial, we formed Bibby Financial Services Inc.
2002 - This was quickly followed with yet another acquisition, a smaller factoring company based in
California and it was here that Bibby Financial Services (CA) Inc. was formed.
2003 - Hot on its heels was the opening of a dedicated sales office in Chicago which we initially intended to develop into a business unit, however, towards the end of 2003 we were fortunate enough to come across an excellent opportunity in which we could acquire an actual factoring company in Chicago. So on 3 June 2004 Bibby Financial Services (Midwest) was born.
2005 - This saw the launch of our fourth business in as many years. Based in Dallas, Texas.
2006 - Finally, but by no means least, we extended our presence in North America even further with the launch of our first Canadian business, based in Toronto.
Phew! It's been a busy couple of years, but I don't expect it will stop there. Well, enough about us for the moment, let's turn our attention to what the US Receivables Finance market has to offer.
The Market
We have seen strong growth in the receivables finance market, with the number of debts factored increasing by 63% over the past 10 years, a positive and encouraging sign that things are on the up after a number of difficult years.
There are currently around 400 companies operating in the US receivables market, although the top 10 account for 80% of the volume. Aside from a small number of mid-sized players there are still huge numbers of smaller factors, offering very specialist or niche services, which tend to be primarily owner managers. Very few offer export services to Europe, putting us in a unique position as one of the few independents offering these types of facilities.
Product Offering
Unlike the UK, in the United States there are essentially only three main product offerings: asset-based lending (ABL); purchase order funding; and factoring.
Our ABL products are very similar to the UK and always involve lending against the A/R and often inventory, plant, machinery and sometimes property. Purchase order funding appears to be more developed and accepted as a mainstream financing product, but the market and number of players is far greater than the UK.
However, the receivables financing product, which tends to be on a selective basis, differs greatly from the UK. A factor generally will buy invoices from selected debtors at high advance rates, 85-90%. While this greatly reduces the workload, the factor can often have clients with high concentrations. Many smaller facilities being done on a non-recourse basis there is little concept of reserves, the factor will operate a cash reserve arising from collections, which is released weekly or even monthly, effectively reducing the overall advance rate to clients.
Throughout our five companies across the States and Canada, we can and do offer this "Selective" product, but have introduced to the market our "Full Turn" product which operates much like an accounts receivable line of credit, with availability created from eligible accounts receivable. We have a dedicated purchase order finance division that operates alongside our receivables-based facilities. As from September we will also have a dedicated Transportation Finance division with a tailored product range of services.
We have also learnt to focus closely on the needs of intermediaries and developed a Bank Program which is unique in the United States giving the banks the options to earn fees, retain lockbox facilities of referred clients, participate into transactions and we will provide them with a private label service.
And so finally, what does the future hold? With the receivables finance market continuing to grow, and with BFS continuing to invest in the North American market and, as part of our ongoing growth and development strategy, we will continue to seek out any new acquisition opportunities.
I am delighted that in the short space of time we have been in the United States, we have truly gone from being an up-and-coming player in the North American receivables funding market, to one of the established market leaders in just five years, which is a true testament to the commitment of the team here in the US.
All I can say is to watch this space as the BFS Group continues its global march.
Australia
Greg Charlwood, Managing Director of Bibby Financial Services Australia, talks about the changes in the Australian factoring market and how their growth has helped them to become one of the only global independent factors.
As part of BFS's worldwide expansion the group entered the Australian market in late 2002. Originally a greenfield operation in Sydney, we provided factoring solutions as the main part of the business. We certainly found the competition to be stiff with both pricing and risk aversion reduced to try to counter our successful entry. However, over the past three years, we have grown the business at a healthy rate and focusing on factoring has been successful.
In fact, last year marked another strong period of growth for us as our client base grew by 50% and a further growth of 40% is expected throughout 2006. We now also hold a 10% share of the market - an impressive result in just three years.
In recent years we have seen a number of Australia's major factoring companies being acquired by the big banks and we are now the only remaining large, global independent factor in Australia.
Our independence also means we are able to shape our facilities. We look at a client's business on a case-by-case basis and then tailor a solution to meet its specific requirements. With so many rules and regulations in place in the big banks, which are difficult if not impossible to bend, they just can't offer the same tailored service to their clients.
However, I do believe that the banks' increased interest in the factoring and invoice discounting market is a clear indication that the industry will now continue to build strongly on its position as a viable solution for Australian SMEs. This is certainly a far cry from the 1980s when the Australian banking sector reduced their overall exposure to the factoring market. This resulted in the business community seeing this "withdrawal" as acknowledgement that factoring was a last resort product used by only those businesses perceived as high risk. This also had a knock-on-effect with key advisors not recommending factoring and, in extreme cases, actually recommending the business community against it.
Thankfully, this situation changed in the 1990s, where we saw a major attempt to turn both the finance and business communities' opinion around and develop the Australian market for factoring and invoice discounting solutions.
Three key events have made this possible. Firstly, the re-introduction of invoice discounting by the major Australian banks; secondly, one of Australia's largest factoring companies - Scottish Pacific - became a major sponsor of the Australian Institute of Chartered Accountants; finally, in 1994 the Institute for Factors and Discounters of Australia and New Zealand was formed as a tool to further enhance the understanding and acceptance of factoring and discounting. Over the years, the IFD has added lobbying to its efforts.
With the market now reporting a total turnover in 2005 of $37bn, compared with only $3bn 10 years earlier, and the number of clients using this form of funding increasing by 9.25% in the past 12 months, factoring and invoice discounting are certainly on the up.
We at BFS have seen things improve dramatically over the years - demand for our invoice finance facilities has increased and we have set up sales offices in Melbourne and Brisbane, enabling us to service our clients more locally.
So as the invoice finance market continues to grow, so I believe will BFS Australia. With a challenging overseas growth strategy I am sure that future opportunities in Australia will be explored.
David Robertson concludes: "We have made great progress in the five years since we first ventured outside the warm comforting climate of the UK to break into the American market. Our overseas operations are increasingly gaining momentum and we will continue to expand this area of our business with ambitious plans for countries further afield, including a number of emerging markets. I for one feel extremely confident that the coming years will prove to be challenging yet extremely exciting for the group."
It is going to be another exciting ride, so hang on everyone!
Top tips to moving into overseas markets
• Understand the global picture of the invoice finance market and the differences between the financial services industry in each country.
• Understand the needs of the local market. Be prepared to adapt your service to fit local market requirements.
• Language barriers can prove a major hurdle to climb, especially when you have a UK parent, that is interested in how you are doing.
• Research potential markets thoroughly. The Trade Partners UK network can provide essential market information to help with your research. Visit www.tradepartners.gov.uk.
• Differing legal systems. In some countries we know that we cannot rely on the courts to help recover funds because their systems are slow, complex and ineffective.
• Never underestimate the significance of cultural differences. Make every effort to understand and accommodate them in your own organisation.
• Commitment is key. Making overseas expansion plans work, takes a vast amount of time and resource, so be prepared for the long haul.
• Build a global brand that is relevant to local markets as it is globally.
