Some experts are saying the golden age of private equity is over because of the decline in bank interest in lending.
Over the past few years, we have seen that banking is getting eroded by - you guessed it - private equity in the ABL business model design. What ABL does is do asset-based lending which is what banks used to very well but it takes up too much time to manage the risk assessment. Remember, the big banks have moved beyond that tailor customizing the suit for the quirks and foibles of the one entrepreneur. Big banks are mass manufacturers of financial loans. The riskier business owners have had to look elsewhere for loans that are more expensive than the banks, but will fill the gap to serve that larger client.
Canada's ABLs have been having a bumper couple of years as they bring their customized loans forward to serve Canadian businesses needing financial support. From my experience with the ABL business, it is a good alternative to banks and the people working with the business owners are far more mature than the bank employees. I also give the ABL industry a huge round of applause for making Canadian businesses more competitive by shoring up worthy companies when the banks would not. Again - the banks are right as these are higher risk loans.
Europe is in a far worse situation than Canada and Danial Shafer at FT points out GE's growth as PE struggles to find loans to help them fund their activities because the banks have shrunk their debt business.
Private equity groups in Europe are increasingly turning towards asset-backed loans as they look to fill the financing gap left by retrenching banks.GE Capital, one of the largest pan-European providers of such loans, is forecasting a wave of asset-based lending deals in 2012 after this year saw such financing becoming more attractive to buy-out groups.The lending arm of US conglomerate General Electric said financing facilities given to private equity backed mid-market companies had shot up to $1.3bn in 2011 from almost zero in the year before.Stephan Caron, chief commercial officer in the UK, said he expected asset-backed lending to grow further next year as GE Capital’s pipeline of deals had approached the size of this year’s financing facilities.