In December 2016, White Oak Global Advisors (together with its advisory affiliates, “White Oak”), a leading originator and underwriter of capital providing direct lending and other initiatives to middle market companies, announced the acquisition of Capital Business Credit, LLC (CBC), a leading commercial finance company that provides asset-based loans, factoring and trade finance products to small and middle-market companies. As part of the acquisition, White Oak acquired CBC’s existing loan portfolio – comprised of over $300 million of assets employed, and the CBC team comprised of approximately 80 members in its office locations in New York, Charlotte, Fort Lauderdale, Los Angeles, Hong Kong and Shanghai.
ABL Advisor spoke with Tom Otte, Managing Director and Partner of White Oak Asset Based Lending to learn more about this strategic acquisition and the company’s expansion into new markets on a global scale.
Perhaps the best way to describe the strategy behind this acquisition is to quote the Greek poet Euripides who said, “Leave no stone unturned.”
ABL Advisor: Please explain the rationale behind this acquisition and why entering CBC’s traditional markets is important to White Oak?
Tom Otte: White Oak has been doing large ticket asset-based and trade finance transactions since I came to California about four years ago to start the asset-based lending business. When the CBC acquisition presented itself, we saw an opportunity to buy a sound portfolio and team that will complement our existing business model in terms of transaction size and product offerings. As you know, White Oak typically focuses on transactions that are greater than $20 million, while CBC’s transactions are typically $20 million or less. The acquisition also provides us exposure to their ABL and trade finance businesses. Lastly, factoring is something we did not possess the skills set to provide to customers, and we’ve been seeking a strong opportunity where we can provide financing “by the invoice” versus financing on a bulk basis. Having the capacity to do both bulk asset-based lending and also invoice financing, combined with the fact that this acquisition allows us to attack a portion of the market we are not currently in, makes this a win-win situation for us. It helps us scale our business and provides us breadth and depth.
This acquisition also helps us achieve what our investors are seeking at this point in the credit cycle – which includes investing in shorter term and liquid assets.
ABL Advisor: White Oak targets acquisitions of companies with disciplined lending practices. Please explain why CBC’s lending practices are attractive to White Oak?
Otte: Smaller businesses require significant monitoring; CBC’s ability to monitor and approve credits along with their successful track record in terms of minimal credit losses, speaks to the strength of their lending practices. The smaller end of the market is always a bit more risky, as there are fewer opportunities to access additional cash flow from asset sales, and very seldom do companies with $15 million loans go through bankruptcy and come out of it successfully. Therefore having the capacity to do the type of business CBC has been doing successfully in the lower end of the market, and their ability to monitor and demonstrate strong credit performance was very attractive to us. We were very impressed with their credit policies, metrics, people and processes. This is why the team will remain intact – which includes Robert Grbic, the President and Chief Executive Officer, Michael Fortino, the Chief Operating Officer and Chief Financial Officer, and Andrew Tananbaum, CBC’s Executive Chairman. Together, I believe we will achieve our goal of expanding into new markets and offering more products.
ABL Advisor: According to the press release, White Oak will retain the CBC team and its various locations in the U.S. and abroad. How will this acquisition compliment White Oak’s current offerings in the middle market? To clarify, what new capabilities will the existing White Oak lending units leverage from the acquisition of the CBC team?
Otte: For now, smaller transactions – which are transactions under $20 million – are the target for this team. After the dust settles, we will start to look at new product opportunities and new geographies. The changes will not be evident immediately because we need to be sure everyone on the team is in sync in order to take advantage of transaction sizes that have not been previously possible for White Oak. I believe that in the longer term you will see White Oak offering more solutions for borrowers related to working capital financing – such as credit insurance, stand-alone inventory financing and more in our future.
ABL Advisor: How would you describe the asset-based lending market today?
Otte: The banks are very focused on specific market segments and risk profiles, and this creates opportunities for White Oak to finance companies that do not meet the banks’ criteria. We see a lot of alternative direct lending opportunities in the market. The more products – or arrows there are in our quiver – the more White Oak will continue to grow. We are very bullish on the asset-based lending market.
ABL Advisor: Do you see a great deal of opportunity overseas – more specifically in Europe?
Otte: Europe is much like the Unites States – with banks focusing on borrowers in their own back yard – and it’s very competitive. The opportunity for White Oak is to be a capital solution provider for cross-border transactions where the banks are less competitive. With Brexit and with the overall state of the banking environment in Europe, if a lender has the capacity and capabilities to do cross-border transactions, that lender can earn attractive returns for its investors. This expansion presents a very exciting opportunity for us to enter new markets, and we believe that we will provide attractive new investment opportunities for our investors.