As lessors look for a low risk approach to trade supply finance, Fred Crawley of Leasing Life discovers that asset management firms may provide the way in:

At present there are somewhere over four million branded vending machines in Europe -  a figure that looks set to rise by at least five percent in the next year. Their combined value represents billions of euros on the balance sheets of the companies whose branding adorns their sides – billions of euros, that is, which manufacturers could instead use to fund their core business activities.

In the same cafes, bars, and entertainment venues as those vending machines are corresponding millions of ice cream freezers, soft drinks dispensers, coffee machines, refrigerators, water coolers and beer pumps, all again on the books of their respective manufacturers, and locking up a vast amount of valuable working capital.

These are trade supply assets, and they may represent a significant amount of low-risk business for lessors who can find a way to sell into that market.

One company that says it can provide such a way in is Acqsys, a Reading-based asset management firm working on the basis of a consolidated service offering.

Essentially for Acqsys, this means passing on ownership of a manufacturer’s assets to a leasing company, and taking on the responsibility for maintaining and servicing those assets itself. The agreement releases working capital for the manufacturer, and frees it from the administrative burden of asset management and maintenance.

In turn the manufacturer pays a single monthly fee to Acqsys, covering both service costs and lease rentals, the latter portion of which is then passed on to the lessor. On the surface, it does not look too different from a large-scale sale and leaseback agreement. But according to executive director Darren Shipard, Acqsys can offer manufacturers large enough savings on servicing to mitigate the costs of lease financing.

Say that, for example, Acqsys has taken on the responsibility of maintaining a portfolio of hot drinks vending machines owned by one manufacturer in several locations in Portugal. If it then makes a similar agreement with another manufacturer, whose assets are present in the same retail locations, it can service both sets of assets at a much lower cost than that which would be incurred if both manufacturers sent out separate maintenance teams.

The more brands it has agreements with, the more of a maintenance saving Acqsys says it can offer; according to Shipard, 30 percent savings have been achieved with some customers. Founded in 2006, Acqsys currently lists brewers Heineken and Scottish & Newcastle, plus Danone, Nestle and Unilever among its clients, and is seeking more multinational customers across Europe.

For potential finance partners in arrangements such as those described above, risk is mitigated by the asset management firm’s technology offerings: Acqsys works closely with RFID technology company Intellident, and equips all of its managed assets with radio frequency tracking equipment. In addition, Acqsys keeps a comprehensive asset register and maintenance history on all goods serviced, meaning that losses through fraud are minimised.

Furthermore, in the event of an outlet holding financed trade supply goods going out of business, recoveries are handled by Acqsys. Assets are then most usually sold back to the manufacturer, or redistributed to other outlets.

According to Shipard, Acqsys’s offering is sold to manufacturers on the basis of operational benefits, rather than through the prospect of releasing operating capital. For the owners of trade supply assets, he says, the driving factor in pursuing a partnership is freedom from the financial and operative burden of providing service to hundreds of SME-level, point of sale businesses.

This operational benefit provides a selling point for large-scale operating lease deals beyond what an asset finance house could offer by itself, and a way into a large and relatively robust market.

“Acqsys’s strength is that it specialises deeply in trade assets,” says Shipard. “It understands their management from an operational and financial perspective, and develops asset management models on a custom basis, client by client. As such, Acqsys provides leasing companies with an open door into a largely untouched asset class with enormous potential.”

Despite the recession, growth in trade supply assets seems to be continuing. In Europe as a whole, the number of branded water coolers on the market increased by 63 percent between 2002 and 2007. Even in the last two years, growth has continued, especially in Europe’s mature markets. In Spain for example, there were 240,000 branded water coolers in operation at the end of 2007. It is thought that by the end of 2010, this figure will have risen to 600,000.

“In this economy, where manufacturers are leaving no stone unturned in looking for value in their organisations, trade assets are the last frontier,” says Shipard. For a risk-averse lessor with some liquidity behind it, it seems they may represent solid new ground to move onto.

Contributed by Fred Crawley - Reporter, Leasing Life & Motor Finance - Leasing Life