Canadian Equipment Finance Magazine July/Aug 2015

July/Aug 2015 • volume 3 • issue 4 | www.canadianequipmentfinance.com

SERVICES REPORT: Managing those heavy equipment assets

Your Business: The internationalization of the RMB Your Team: Truth in advertising PM40050803

contents July/August 2015 Volume 3 Number 4 Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Editor Karen Treml karen@canadianequipmentfinance.com Creative Direction / Production Jennifer O’Neill jennifer@canadianequipmentfinance.com

ELFA REPORT: The ‘Survey of Equipment Finance Activity’ reports overall new business volume grew in 2014 and June business volume is up. As well, Element Financial and Quick Bridge funding received ELFA awards »4

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SQUEEZING THE MOST VALUE FROM YOUR HEAVY EQUIPMENT ASSETS Leveraging financial obligations in market downturns »10

FOR WHAT IT’S WORTH Appraisals, auctions, and aftermarket remarketing »12

DON’T BURY THE LIVE AUCTION JUST YET Live events still have their place »14

NEWS »7

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ELFA Report

ELFA ‘Survey of Equipment Finance Activity’ reports overall new business volume grew in 2014 New business volume grew 6.7 per cent in the equipment finance industry in 2014, according to the 2015 ‘Survey of Equipment Finance Activity’ (SEFA) by the Equipment Leasing and Finance Association (ELFA). The rise in new business volume marked the fifth consecutive year that businesses increased their spending on capital equipment.

The SEFA report, now celebrating its 40th year, covers key statistical, financial and operations information for the $903 billion equipment finance industry, based on a comprehensive survey of 100 ELFA member companies. The report, which includes an expanded executive summary, is available at www.elfaonline.org/SEFA. ELFA also released a companion report to the 2015 SEFA called the 2015 ‘Small-Ticket Survey of Equipment Finance Activity’. The report, which focuses on small-ticket and micro-ticket equipment transactions among the SEFA respondents, found that new business volume in the small-ticket space grew by 7.1 per cent in 2014.

“We are pleased to present the 2015 Survey of Equipment Finance Activity.

This year marks the 40th anniversary of the report, which has grown over the years into the most important source of statistical information available on the $903 billion equipment finance industry,” said William G. Sutton, CAE, ELFA president and CEO. “The data show that the equipment finance industry is healthy and growing, continuing an upward trend since the end of the Great Recession. More recent data collected in 2015 indicate that positive momentum is continuing, with member companies reporting solid new business growth and portfolio performance. We remain cautiously optimistic that demand for capital equipment will continue to drive positive growth for the equipment finance industry.”

Key findings for 2014 as reported in the 2015 SEFA include: ◉◉ Overall new business volume grew 6.7 per cent.

-- Positive trend: In 2014, the 6.7 4

per cent growth rate was lower than the previous three years, but it still surpassed the 2.4 per cent rate of growth for the U.S. economy.

New business volume increased for the fifth year in a row, following increases of 9.3 per cent in 2013, 16.4 per cent in 2012, 16.5 per cent in 2011 and 3.9 per cent in 2010, and a decline of 30.3 per cent in 2009.

-- By organization type: Independent equipment finance organizations led the industry in new business volume growth for a third straight year.

Independents saw a 17.6 per cent increase in new business volume, while banks saw their volume grow by 7.4 per cent and captives saw a 1.3 per cent increase.

-- By market segment: New business volume varied by market segment, growing 9 per cent in the small-ticket segment and 7.9 per cent in the middle-ticket segment, and falling 2.4 per cent in the large-ticket segment. ◉◉ From an asset perspective, the topfive most-financed equipment types were transportation, IT and related technology services, agricultural, construction and industrial/ manufacturing equipment. The top five end-user industries representing the largest share of new business volume were services, agriculture, industrial/ manufacturing, transportation and wholesale/retail. ◉◉ Overall, cost of funds increased slightly. Competitive pressure continued to drive pre-tax spreads down in 2014 to 2.8 per cent, its lowest level in five years. ◉◉ Assets under management grew 8.6 per cent. Return on assets remained steady at a healthy 1.7 per cent, unchanged since 2012. ◉◉ Net income increased 15.2 per cent.

Return on average equity decreased slightly, but remained strong at 16.6 per cent. ◉◉ Overall, delinquencies remained steady. Full-year losses or charge-offs fell close to 0.0 per cent overall.

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

◉◉ Credit approvals decreased slightly while the percentage of approved applications being booked and funded remained steady. ◉◉ Employment levels grew moderately by 1.7 per cent, with headcount in sales and marketing increasing and servicing declining slightly. There was a significant increase in headcount associated with compliance. ◉◉ Electronic documents: For the first time, the SEFA asked respondents about their use of electronic documents for funding new business volume. A total of 70 per cent reported some use of electronic documents.

June new business volume up The Equipment Leasing and Finance Association’s (ELFA) ‘Monthly Leasing and Finance Index’ (MLFI-25), which reports economic activity from 25 companies representing a cross section of the $903 billion equipment finance sector, showed their overall new business volume for June was $9.5 billion, up four per cent from new business volume in June 2014. Volume was up 34 per cent from $7.1 billion in May. Year to date, cumulative new business volume increased 9 per cent compared to 2014.

Receivables over 30 days were 1.1 per cent, unchanged from the previous month and up from 0.9 per cent the same period in 2014. Charge-offs remained at an all-time low of 0.2 per cent for the 16th consecutive month.

Credit approvals totaled 79.4 per cent in June, up slightly from 79.2 per cent in May. Total headcount for equipment finance companies was up 5.2 per cent year over year.

Separately, the Equipment Leasing & Finance Foundation’s ‘Monthly Confidence Index’ (MCI-EFI) for July is 62.6, remaining essentially the same as the June index of 63.0.

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ELFA Report

Element Financial, Quick Bridge Funding to receive ELFA ‘2015 Operations And Technology Excellence Award’ The Equipment Leasing and Finance Association (ELFA) has announced that its ‘2015 Operations and Technology Excellence Award’ will go to two companies – Element Financial Corporation and Quick Bridge Funding, LLC. The winners were selected by a subcommittee of ELFA members and will be showcased during ELFA’s Operations and Technology Conference, Sept. 16-18 at the Hilton Philadelphia at Penn’s Landing in Philadelphia, PA. “ELFA’s Operations & Technology Excellence Award was established to recognize innovation, creativity and the employment of newer

technologies and operational process improvements,” said Hal Hitch, Director of Operations for CIT Equipment Finance, US and Subcommittee Chair for the award. “The 2015 award applications demonstrated a greater focus on improving the customer experience through the use of cuttingedge technology, and a marked increase in capital spend over prior years, based on the size and scope of the projects submitted.

Both winners are inspiring examples of that spirit. We look forward to hearing the sharing of best practices from both winners at the ELFA

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CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

Operations & Technology Conference in September.”

“ELFA is pleased to showcase innovative uses of technology in the equipment finance industry,” said William G. Sutton, CAE, ELFA President and CEO. “The operational improvements demonstrated

by Element Financial and Quick Bridge Funding serve as models on the effective use of technology in our industry, and further demonstrate how ELFA members are ‘Equipping Business for Success.’”

Element Financial Corporation is recognized for engineering an innovative process to dramatically improve title and registration services across 2,700 unique jurisdictions for their fleet management customers.

Element’s approach and the resulting suite of tools significantly improved customers’ experience by enhancing service quality and expediting service delivery.

Their efforts also improved internal processes, leading to increased employee productivity and reduced operating expenses. Moving forward, Element will be able to leverage this creative approach across other departments, relying on IT and business collaboration and ongoing data evaluation to produce improved results both internally and for customers.

Quick Bridge Funding, LLC is recognized for building an innovative, scalable, state-ofthe-art enterprise financial platform to manage its entire

business. The financial platform is a real-time, webbased work-flow software system with integrated reporting, an innovative Big Data aggregation and decision/intelligence engine with robust third-party integration. The project demonstrated positive impacts through a significant reduction in application cycle time, conversion to a single repository for customer information, API integration with partners, centralized reporting and significant reductions in scoring model validation time. The project team established key values that allowed the project to stay on target and reach its goals; namely, the ability to inspect and adapt throughout, ensure involvement of all impacted functions, and adoption of a clean-slate mentality. As an important barometer of the innovation and cutting-edge technology, a number of potential patents were identified.

The Operations and Technology Excellence Award identifies and recognizes equipment finance organizations that have demonstrated best practices in developing and implementing innovative uses of technology or creative business processes to improve operations, enhance customer interactions, enter new markets and build overall ROI. The program brings the backroom to the foreground, spotlighting the best in the industry as an example for others.

News

Uber introduces Consortium to car leasing unit acquire LeasePlan Uber has developed a pilot program – Xchange Leasing – a leasing option that is administered by an Uber subsidiary. The Xchange lease offers value that traditional auto leases do not. Drivers who participate in Xchange for at least 30 days will be able to return the car with only two weeks’ notice, and limited additional costs. The program provides for unlimited mileage and, if desired, drivers can lease a used car. Routine maintenance is included.

Xchange Leasing is currently available in major metropolitan areas in California (Los Angeles, San Francisco, and San Diego) and select cities in Georgia and Maryland. Additional locations will come available soon.

LeasePlan Corporation N.V. has been informed by its current 100 per cent shareholder Global Mobility Holding B.V. (a joint venture of Volkswagen Aktiengesellschaft and Fleet Investments B.V.) that it has reached an agreement with a consortium of long-term investors to acquire full ownership of LeasePlan.

The total value of the transaction amounts to about EUR 3.7 billion. The Consortium plans to maintain LeasePlan’s diversified funding strategy going forward, supported by its investment grade rating.

The agreement is subject to approval by the relevant regulatory and anti-trust authorities including the European Central Bank in consultation with the Dutch Central Bank. Closing is expected by the end of 2015 and is subject to obtaining these regulatory and anti-trust approvals.

Global hiring in equipment finance, lending continues rising According to the ZRG Partners ‘Global Hiring Index’, hiring demand in equipment finance and lending showed another quarter of overall increase, driven primarily by the U.S. and Germany hiring demand. The GLSI ended the quarter over 100 for the first time.

In addition to the U.S. markets and Germany continuing the quest for additional talent, the BRICS’s staged a comeback of sorts after a slower Q1 with India and Brazil both posting growth in demand for specialized lending talent.

According to the report, the big story is Germany, which has now four straight quarters of increases in demand while neighboring European countries still suffer from some ups and downs in the markets for talent. The UK softened from the big jump posted in Q1 but remains above 2014 levels, indicating the improved hiring optimism continued through the second quarter. Mexico and South America has shown a steady and moderate decrease in hiring demand for four straight quarters, with Mexico showing the biggest drop off in the second quarter. A mixed bag of results around the world.

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canadianequipmentfinance.com | July/August 2015 | CANADIAN EQUIPMENT FINANCE

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News

OMVS to introduce ‘Uber-for-Trucking’ platform

CSI announces officer promotion CSI Leasing, Inc. (CSI) announced today that CSI Leasing Canada’s Aaron Tanaka has been promoted to senior vicepresident. Previously vice-president, Tanaka also currently serves as chief credit officer, head of treasury and assistant counsel for CSI Leasing Canada, a wholly-owned subsidiary of CSI Leasing. He has been with CSI Leasing Canada since 2003 and is based in Oakville, Ontario.

Prior to joining CSI Leasing Canada, Tanaka worked for BAL Global Finance Canada where he provided funding for some of CSI Leasing Canada’s earliest leases.

CSI Leasing, Inc. is one of the largest privately-held independent equipment leasing and equipment lifecycle services companies in the world. Established in 1972, CSI has operations throughout North, Central and South America, Europe and Asia. More information is available at www. csileasing.com.

On the Move Systems’ (OMVS) shared economy business model received additional market validation after a respected industry survey revealed truckers are actively looking for ways to increase route optimization, a major selling point of the company’s upcoming “Uber-for-Trucking” platform.

According to GE Capital’s recently released ‘Trucking Industry Economic Outlook Survey’, national and local carriers are finding fewer idle trucks available for capacity, and as a result, “companies have gotten smarter about the contracts and the routes that they take, and how they match those with the businesses available.”

OMVS CEO Robert Wilson said this important finding plays right into the shared economy business model now under development. “The GE Capital survey shows truckers are putting more time and effort into selecting routes in order to optimize their business and profits. And our own market research matches the survey’s results. Both show there is a great need in the industry for

our shared economy model and when it is released, we’re optimistic our revenues will throttle up quickly as truckers discover how this unique platform will positively impact their business.”

The GE Capital survey also revealed other encouraging industry signs that bode well for OMVS’s shared economy model. Just under half of all respondents believed the trucking business will expand in the next 12 months. More than a third expected to increase their capital spending in the next year and just under 50 percent planned to add new equipment.

OMVS continues to recruit trucking partners for its online platform as analysts predict sales in the shared economy could reach $335 billion by 2025.

On the Move Systems, Inc. (OMVS) is focused on the development of cutting-edge technology across a broad spectrum of industries. The company is currently exploring new online tools to reduce costs and increase convenience in the tourism and travel industry and exploring new opportunities in trucking.

For breaking news and in depth new features, visit our website at www. canadianequipmentfinance.com 8

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

News

Private lending opportunities to remain robust The U.S. economic environment continues to be ideal for asset-backed lending, according to a new research report from Old Hill Partners Inc. In its 2015 midyear update, Old Hill Partners’ CEO John Howe notes the private lending space continues to be characterized by a strong economic foundation, low default rates, high collateral values and the ongoing departure of traditional lenders from the illiquid credit markets.

Meanwhile, extended equity and fixedincome markets, not to mention volatility around geopolitical issues such as Greece, have heightened the attractiveness of well-constructed asset-backed lending transactions and the significant yield pickup they can deliver when properly managed.

“The current opportunity in direct lending is very much a product of the strong macroeconomic environment, growing institutional interest, and regulatory hurdles placed on traditional lenders,” writes Howe.

“It will remain strong through the end of this year and well into 2016, as alternative lenders continue to fill the void created by strong demand for growth capital by businesses on one hand and reluctance on the part of banks to meet it on the other.”

The report also examines the impact of potential Federal Reserve interest rate hikes on the private lending industry, and concludes that although timing remains hotly debated among economists, the data does not support significant tightening. “Any Fed move this year will be one of convenience, not necessity, and won’t significantly affect corporate capital costs,” added Howe.

“Rates would need to rise 200-300 basis points higher in order to impact the private debt market, and that’s not going to happen quickly.”

Old Hill’s update also notes that not all private lenders – or their transactions – are created equal. Wide differences exist in the quality of both issuers and lenders, the report contends, with issuer due diligence, verification of collateral, and creative transaction structures being the linchpins on which prudent asset backed lending relies.

“Above all else, consistent success in this business requires a sound, disciplined and repeatable investment process anchored on risk mitigation,” writes Howe.” It’s a philosophy ingrained in Old Hill Partners since our founding in 1996.”

To send press announcements, please direct them to Karen Treml, Editor, at karen@canadianequipmentfinance.com

canadianequipmentfinance.com | July/August 2015 | CANADIAN EQUIPMENT FINANCE

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Services Report

Squeezing the Most Value from Your Heavy Equipment Assets in a Market Downturn

By Franklin Langham

eavy equipment owners and fleet managers across Canada face serious questions about how to best manage their financial obligations after years of operating within softening mining, oil, and gas markets. For generations, the growth potential of these sectors seemed endless. But now, with unstable economic conditions driving low commodity prices and greater environmental regulation, the future looks less certain. Both Industrial companies and their financing

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organizations, with an eye to the same unstable future, are struggling to balance their immediate needs with how to ensure long-term profitability.

Every business has ups and downs, the mining, oil, and gas sectors are no different. Though Canadians and their global business partners are feeling the effects of a downturn, it’s possible that we’ll see the industry begin to recover in the coming years. Finance and equipment owners alike need the clearest possible view of their assets’ current market value in order to make informed decisions about how much risk to carry, given the possibility of a market

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

recovery. There’s no better way to get an incisive view into asset value than to get your fleet on a regular appraisal cadence, quarterly or bi-quarterly, with a company experienced in assessing both fair market value and forced liquidation value.

When financing companies can look through their customers’ financials over time and see a traditionally healthy customer who is just a victim of the market’s typical cycles, they may be more inclined to restructure loans and give their customer a boost to survive the downturn. If their customers’ balance sheets aren’t as strong as believed initially, it may be time to call in their

Services Report debts. Appraisals can help fill in the blanks for both parties as they assess and monitor a company’s overall health.

Appraisals can be formal or informal, with the latter referred to as ‘desktop’ or ‘estimated’ assessment. Either way, the appraisal company still needs to have a deep understanding of current marketing conditions, expertise in remarketing heavy equipment, and a team able to do quick turnarounds on the estimates in order to provide an accurate, timely report. If the financial situation is more serious and valuations are likely to be reviewed externally by a third party, a more formal appraisal by an ASA Certified Appraiser is probably in order.

This will allow all parties to review estimated FMV, OLV and FLV values for the designated fleet of equipment.

Asset disposal The next step on the path to maintaining profitability in a market downturn is to identify a fast, efficient way to dispose of non-utilized assets along the way. If equipment is idle, it is not producing revenue and becomes a drag on the balance sheet. By identifying an avenue for quick disposal of your equipment that will ‘net’ you the most for your assets, you are able to generate liquidity that can be put to work elsewhere in your business.

My top advice for getting the most value from your current fleet and surplus heavy equipment:

1. Keep your inventory of core equipment lean.

It’s best not to keep specialized equipment in storage without a project in the pipeline that will require its use. Maintaining equipment that isn’t actively helping you turn a profit will put a drain on your resources. Holding on to equipment you don’t have the time or money to maintain regularly will ultimately reduce its resale value. Look to sell the equipment that has no foreseen near-term use, put those proceeds to work elsewhere, then re-purchase or rent that equipment only when there is a need. Keep in mind, you can typically find well-maintained, used equipment in auction at any given time.

One way to decide when to dispose of

specialized equipment is to look at items’ major components repair lifecycles. For instance, if you’ve regularly maintained a piece of equipment but primary components are due for a major repair soon, it may be time to connect that item with a new owner who needs the equipment and has the budget for a fix. Some of the most expensive equipment repairs to have on your radar: Engines, transmissions, steering and other implement controls, damaged undercarriages, wear and tear on the main frame and articulation joints.

2. Consider working with a marketplace with a global buyer base.

If your area is experiencing an industry downturn, it’s going to be tough to market your surplus industry equipment to other companies in your region dealing with the same economic conditions. Instead, take advantage of today’s instant, always-connected global economy and work with an auction company to get your equipment in front of buyers around the world.

Advertising your equipment to a global audience has many advantages over trying to sell locally, including a better chance that you’ll hit the right market conditions and interested buyers. Often, buyers in developing nations are interested in equipment you may have considered to be towards the end of its useful life, since they can use it for parts or may not need to factor in strict regulatory requirements as you do in Canada.

Don’t forget: Canadian sellers can use stronger currencies to get an edge in cross-border sales. Buyers are often willing to pay transportation costs and work with a customs broker in order to take advantage of a favorable exchange rate.

3. When selling, be as transparent as possible about equipment condition.

Online auctions are one of the easiest ways to dispose of your surplus assets, since you won’t need to pay to transport your items to a physical auction yard but still get the benefit of buyer eyes from around the world. That said, buyers—

particularly online—are rightly cautious about investing what can amount to hundreds of thousands of dollars in equipment they haven’t been able to personally inspect. Head off those fears at the very beginning by giving buyers as much information as possible in the form of a detailed inspection from a trustworthy third party, such as your auction marketplace. Informed buyers are more likely to be willing to pay fair market value or more for your assets.

Ideally, the report on each item should include ample photos and video of the equipment in action, along with detail on frame and articulation joint condition, any noticeable cosmetic or load-bearing damage, and the results of a lab fluid analysis. Be sure to work with an inspection company that offers a guarantee that the report is accurate, and who can collaborate with your appraisal team to minimize inefficiencies.

As a heavy equipment owner or asset manager in a financing company working with the mining, oil and gas or other global industries, the market’s peaks and valleys are out of your control. However, you can be crystal-clear about the value of your assets over time with reliable, quarterly appraisals, and therefore empowered to work with a trustworthy marketplace to get the most cash as possible for your machines at any given time. Whether you’re liquidating to fulfill financial obligations or simply staying lean to maximize profits, an informed decision is always the best decision.

Franklin Langham, Vice-President Sales, Northeast, IronPlanet, is IronPlanet’s in-house financial services industry expert. He is responsible for financial service industry customers which includes companies who finance and lease equipment to the construction industry. Langham also leads IronPlanet’s sales efforts in the Mid Atlantic, Northeast, and Midwest regions of the U.S. covering contractors, dealers, equipment end-users, rental companies, and local or community banks. He joined IronPlanet, the leading online marketplace for buying and selling used heavy equipment and trucks, in 2008 and has held several strategic positions within the company. He graduated from the University of Georgia with a Bachelor of Business Administration (BBA), Risk Management & Insurance degree from the Terry College of Business. He also has an undergraduate degree from Wofford College.

IronPlanet is the leading online marketplace for used heavy equipment and an innovative participant in the multi-billion dollar heavy equipment auction market. Since 2000, IronPlanet has sold over $4 billion of used equipment online and has built a database of more than 1.3 million registered users worldwide. IronPlanet connects buyers and sellers of used equipment with its exclusive IronClad Assurance® buyer protection program and family of sites including IronPlanet®, GovPlanet®, TruckPlanet®, Cat Auction Services, Kruse Energy & Equipment AuctioneersSM, allEquip® and Asset Appraisal ServicesSM. IronPlanet is backed by Accel Partners, Kleiner Perkins Caufield & Byers, Caterpillar, Komatsu and Volvo. For more information, visit www.ironplanet.com.

canadianequipmentfinance.com | July/August 2015 | CANADIAN EQUIPMENT FINANCE

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Services Report Sample Head

For What It’s Worth

Appraisals, auctions, and the aftermarket remarketing in Canadian asset financing

By Stan Prokop

here’s something happening here – what it is ain’t exactly clear’ pertains of course to the iconic Buffalo Springfield song. However, to us, things are very clear – remarketing, aftermarket, and auction and appraisal players are continuing to provide valuable support to the asset-based financing industry, with many players enjoying strong growth and success.

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The remarketing process Although equipment finance firms in Canada generate profits from numerous sources within a lease transaction one of the more underutilized sources of income and profit is the remarketing process. This ‘end of lease’ strategy should be an integral part of a lessor’s portfolio management process.

The sale or ‘re-lease’ of specific assets has continued to be a strong source of fee income for experienced lessors and the aftermarket appraisal and auction firms that support this element of the lease transaction. The ability to understand the complex market of auctions and appraisals keeps successful players in this area head and shoulders above the competition.

Numerous lessors continue to rely on vendor marketing agreements that allow them to partner with particular manufacturers and vendors that they support as a source of completing the lease cycle. Aspects of their arrangements with vendors include lease default and termination, exclusivity, etc.

Working with reliable partner firms in the remarketing area decreases many of the costs associated with the aftermarket process. Inefficient leasing companies that are unfamiliar with strong remarketing practices will almost always experience higher costs in the areas of advertising, storage, and re-certification of assets.

Third party remarketers will often 12

have strong technical knowledge and a good knowledge of prospective buyers.

Certain lessors have successfully mastered the aftermarket by employing a chain of equipment vendors and brokers who can effectively increase returns on asset disposition. Relationships with lessees already in the portfolio can, in certain circumstances, allow for successful re-leasing of the asset. Simply speaking – refinancing versus selling for cash.

Asset valuation Many asset categories in the Canadian equipment leasing marketplace often come with a high risk of obsolescence, as well as ‘limited use’. Numerous third party appraisal firms populate the Canadian marketplace and can assist asset lenders in determining current (and future) asset values. Investment in appraisals can then affect financing rates as well as lease amortization terms. Appraisals are prepared on different levels, including fair market value, liquidation value, forced liquidation value, etc. Working with qualified industry experts will always provide the best market research around minimizing asset losses and accelerating remarketing profits.

Appraisers that represent lessors on transactions help provide real market values of assets on an ongoing basis. It bears mentioning that typical appraisal costs at lease inception are typically borne by the lessee. The effective use of a combination of appraisal and remarketing resources (internally or externally) reduces the risk of financing assets.

Online auctions Appraisal, auction, and remarketing, historically perhaps one of the most ‘low tech’ aspects of asset financing and lending in Canada, has been disrupted by... you guessed it... the Internet. Lessors can effectively use online internet consumer and business auction sites to efficiently dispose and market portfolio

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

off lease assets.

These auction sites can provide complete ‘fulfillment’ within the aftermarket remarketing process. Lessors in Canada need only check business newspapers and periodicals to utilize such breakthrough technologies as live auction sites, providing ‘real time’ excitement in the auction process. Many online sites have a specialization and in certain instances can also provide appraisal services for the lessor/seller.

Those lessors specializing or participating in certain asset categories such as technology often have special issues surrounding aftermarket and remarketing. Vendors and lessors have participated substantially in the new digital economy and in fact efficient financing of technology has played a huge role in economic development in Canada. Even software applications can be financed and application software essentially has the same collateral classification as ‘goods’.

Suffice to say challenges exist in financing software, as it is licensed, not sold. Simply speaking software vendors have a stated reluctance to allow transfer or re-licensing of the application.

Lessors such as Element Financial focus on a huge part of the asset finance/ leasing industry in Canada and the U.S. In this industry both return provisions, as well as maintenance can dramatically affect remarketing and auction dynamics.

Numerous attributes pertain to the running of a successful lease/asset financing business. While many focus on branding, infrastructure, pricing, etc., staying ‘in tune’ with changes in auction processes, remarketing, appraisals, etc. will add to earnings and long term success within the business cycle.

Stan Prokop is principal at 7 Park Avenue Financial and specializes in business financing for Canadian firms, such as working capital, cash flow, asset based financing, equipment leasing, franchise finance and Canadian tax credit finance. Founded in 2004, the company has completed in excess of $90 million of financing for Canadian corporations. www.7parkavenuefinancial.com

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Services Report

B I D BID

BID

Don’t Bury the Live Auction Just Yet Online-only offers a huge upside, but live events still have their place.

By Jeff Tanenbaum

hen I started in the remarketing business 30 years ago, a typical workday involved standing at a podium, waving a gavel, and shouting into a microphone as crowds of buyers vied to snap up whatever assets happened to be on the block. In this pre-Internet era, being an auctioneer was all about officiating events “IRL” (“in real life”), as the kids say.

Then, in the late 1990s, we saw the advent of the live webcast auction, where the seller holds a typical auction but opens the proceedings to online bidders as well. Alarmed somewhat by the rise of eBay, remarketing companies had begun to make a concerted effort to gain a foothold in cyberspace. Our tech-sector buyers were the first to get interested in the idea of bidding online in a professionally conducted,

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service-oriented auction. Buyers in the industrial and other asset classes soon became comfortable with live webcasts as well. By the end of the last decade, the pendulum had swung definitively toward these hybrid auctions with an online component.

The trend toward online-only Now the pendulum appears to be swinging even further in the digital direction –toward online-only events – as more remarketing companies seek to nix the in-person component of their sales altogether. So is it time to bury the centuries-old process of conducting live, on-site auctions? For a variety of reasons, I would argue the traditional auction still has its place.

But first, let’s look at why online-only sales have become so popular in the remarketing business. Indeed, in our experience, the online-only approach is the best solution for about 70 per cent

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

of auctions. For starters, this method offers substantial upside, not the least of which is access to a massively expanded audience of buyers hailing from all over the planet.

Moreover, many sellers have noticed some unintended consequences associated with the hybrid, webcast model. When you give buyers the option of bidding online, your actual on-site crowds will start to thin as more buyers get in the habit of logging in to auctions rather than attending them in person.

At longer auctions you might start with reasonably good on-site attendance but then watch the crowd thin as the event progresses. Why? Because today’s buyers know they can leave the auction and rejoin it later from a laptop or PC. There’s a reason Hollywood likes to depict standing-room-only auctions on screen: They have an infectious drama and energy to them. The higher energy of a well-attended, competitive auction

Services Report can and often does lead to higher bids.

Thus, thinner crowds can have a negative effect on the atmospherics of an auction.

Maybe the auctioneer has less energy, or the ‘vibe’ becomes less exciting. These effects are noticeable, not just to those attending on site, but also to people watching on webcams. Thus, some sellers may be moving to online-only models as a way of sidestepping the issue of declining live attendance.

Online-only sales are also less expensive and less complicated to run than hybrid auctions, which require security and other personnel, with extra time on location and other complications, including separate sets of terms for online and on-site buyers.

So if online-only auctions offer so many distinct advantages, why not just get rid of the traditional live, in-person auction?

Live auctions add dynamics Savvy sellers understand the importance of cultivating face-to-face relationships with prospective buyers. Holding in-person auctions gives sellers the opportunity to look buyers in the eye and have conversations with them. This kind of face time can translate directly into dollars. If sellers completely dispense with live, in-person auctions, they will lose this opportunity.

Live auctions are also a bit more dynamic, in ways that can benefit sellers.

An experienced auctioneer conducting an in-person event will look around the room and use his instincts to get a feel

“A lot has changed from the pre-Internet era. Today, the best remarketers are multidimensional …” for what opening prices should be. The presence of several big spenders who always try to outdo one another will not go unnoticed. One of the few drawbacks of online-only sales is that they don’t offer this opportunity to ‘get a feel for the room’. When selling exclusively online, starting prices for individual lots will tend to be fixed, sometimes as low as $1.

Buyer preferences are a key consideration as well. For some buyers, being able to see and be seen by the auctioneer is of paramount importance.

Others like to be able to pull cash directly out of their pockets and hand it to sellers. Social factors can also apply: When putting together an auction of high-end audio-mixing equipment, an experienced seller might take into account that she is dealing with people who like to chat face-to-face about this collectible equipment. These are buyers who see auctions as social events where they can rub elbows with their peers. Put them in a room together and they are more likely to bid aggressively.

The bottom line is flexibility is worth preserving: Choosing the right channels

for an auction depends on the context.

There is a time and a place for each one, whether you’re talking about a live webcast sale, an in-person auction or an online-only event.

A lot has changed from the preInternet era. Today, the best remarketers are multidimensional. They maximize asset values by leveraging a variety of strategies. This customer-centric approach is no different from the “omnichannel” notion that is rapidly transforming North American retail.

The big chains would be complacent if they said to shoppers, “We’re only going to sell to you via this one channel.”

That’s why chains offer websites, catalogs, conventional stores, outlets, you name it. Auctioneers should be every bit as buyer-centric.

The essential tool for today’s auctioneer isn’t necessarily a wooden gavel, or even a computer mouse. Rather, it is the strategic mindset needed to pick the most appropriate sale solution.

Jeff Tanenbaum is President of Tiger Group’s Remarketing Services division; jtanenbaum@tigergroup.com.

Creating an optimized branch of the future.

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15

Your Business

The Internationalization of the RMB On the intricacies of China’s financial system

By Jason Henderson

ith China expected to achieve capital account convertibility within two to three years, the clock is ticking for global investors and corporations who are yet to learn the intricacies of China’s financial system.

China is the world’s second-largest economy and its largest trading nation.

In 2013, its share of global GDP as well as global trade was 12 per cent.1 But China’s economic prowess is not yet matched by its financial firepower. As of 2011, China had less than a three per cent share of global holdings of overseas assets and liabilities, even when its large holdings of foreign exchange reserves are included.2 A great wall separates China’s capital

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markets from the rest of the world, hence foreign investors have limited exposure to China’s stocks and bonds, and Chinese investors are generally restricted to investing in domestic assets.

However, in recent years, China has embarked on a mission to liberalize its capital account. It has created, and subsequently widened, various investment channels that allow foreign capital to flow into the country.

With the Qualified Foreign Institutional Investor (QFII) scheme, the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme, and the northbound trading link of the Shanghai-Hong Kong Stock Connect programme, foreign investors are gaining

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

increased access to China’s markets.

This will lead to greater inflows and, when A-shares are finally included in emerging markets indices, the effect will multiply. Foreign investors who become familiar with China’s domestic markets now can be ready to make the most of this seismic shift in global equities when it happens.

Meanwhile, with outbound investment schemes such as the Qualified Domestic Institutional Investor (QDII) scheme and the southbound trading link of Stock Connect, China is introducing a new – and potentially enormous – source of capital to the rest of the world. The Chinese are keen savers: the country’s household savings amount to nearly 50

Your Business trillion yuan,3 or almost US$8 trillion.

This clearly has profound implications for capital markets around the world.

Global investors and even issuers should also take the time to understand China’s domestic bond market. It’s the third-largest in the world, but is small relative to China’s huge economic output – China’s outstanding bonds amount to 5.1 per cent of the world total, yet China’s economy contributes 12 per cent to global GDP. Also, the corporate bond market in China remains underdeveloped, representing around 25 per cent of total bonds outstanding – much less than the figure in developed markets.4 Beijing has plenty of incentives to grow its debt capital market. A well-developed bond market would provide long-term investment instruments with fixed returns to an ageing population; give the middle class an additional investment vehicle with which to diversify their portfolio; and create a less costly but more efficient channel of funding for Chinese corporations.

This will not just be for domestic borrowers. China has encouraged the issuance of panda bonds – onshore bonds, denominated in Renminbi, issued by foreign companies – thus making it easier for multinational corporations to raise capital onshore. China’s bond market has huge growth potential, and it’s increasing likely that it will overtake Japan’s to become the world’s second-largest.

Finally, the liberalization of China’s financial system will affect the way companies manage their liquidity in China – particularly as part of a regional or global cash management strategy.

Again, the sooner foreign companies understand this, the sooner they will benefit from it.

As Canada’s second largest trading partner, China’s capital markets present a real opportunity for Canadian companies and investors to tap into the fastestgrowing economy in the world, thus contributing to our long-term economic health. In fact, as part of the recent launch of the Renminbi clearing centre in Canada, Canada was awarded RMB50 billion of RQFII quota, which will enable local investors to gain direct access to the growing Chinese bond market.

The internationalization of the RMB is one of the most significant financial events of the 21st century, and Canadian businesses and the economy as a whole will benefit from Canada’s position as the first RMB trade and investment hub in the Americas.

For years, multinational corporations with operations in China had to face the issue of ‘trapped cash’ – the inability to freely remit their funds to their regional treasury centers outside Mainland China.

But that is changing. Beijing now allows greater freedom for global companies to move yuan in and out of China, which achieves two goals: a renewed push to redenominate China’s trade with the world in Renminbi; and encouraging treasurers to buy more yuan investment products.

For most companies, the biggest step forward is a ruling that allows companies to repatriate their profits. Foreign-owned companies can now lend accumulated Renminbi holdings to their parent or

subsidiary companies overseas.

Foreign companies, including those from Canada, were once discouraged from doing business in China by the difficulties involved in getting cash in and out of the country. But these new regulations are helping to make “trapped cash” a thing of the past.

Gradually, the wall separating China’s financial system with the outside world is coming down. With China expected to achieve capital account convertibility within two to three years, global capital markets are bracing for China’s financial integration with the world. For foreign investors and corporations, it’s better to get a head start.

Jason Henderson is Managing Director, Head of Global Banking and Markets at HSBC Bank Canada.

1 The rise of the redback III, HSBC Global Research 2 http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2013/ qb1304prereleasechina.pdf 3 http://www.bloomberg.com/news/articles/2014-08-15/china-s-savers-divert-record-2-1trillion-to-wealth-products 4 The rise of the redback III

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17

Tech Report

The Power of the Platform

By Vladimir Kovacevic

s the CTO of a software company I spend a fair bit of my time thinking about technology. More specifically, about how to make the legacy technology work with current technology and how to set the foundation for the technology of tomorrow while at the same time enabling the business to grow and evolve in new and sometimes unpredictable ways. Even with a very specific focus on North America and asset based finance there are so many variations and combinations of how business models and systems fit together that it’s nearly an impossible task. That’s why I get really excited about companies that provide services or solutions that make a positive and real difference to the business. One such company is Salesforce.

While most people immediately think ‘CRM’ when Salesforce is mentioned, the reality is that the Salesforce CRM is just the tip of the iceberg and that the real value lies beneath what’s immediately visible. I like analogies and examples – and the best one I have for Salesforce is to think about a company that invented

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this great and revolutionary engine that has many different applications and then, in order to demonstrate the greatness of the engine, put together a car. Would you classify this company as a car company? I think not. Well, thinking about Salesforce as a CRM company is the same thing.

In order to understand the importance of the ‘engine’ and why Salesforce is not a CRM company, it is also necessary to understand the natural evolution of a software company and the software industry as a whole. I always think of it in terms of three specific phases.

Custom solutions In the early days of automation it was all about creating custom, ‘one-off’ solutions that would meet specific business needs and address the current business model. Given a good understanding of the business problem and having a capable and competent vendor, businesses were able to create some outstanding and very unique solutions. These solutions were excellent at what they did and many of them are still around. We all know them as legacy systems. They operate without fail and they do exactly what they were designed

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

to do. While that’s their greatest strength it’s also their greatest weakness. They do exactly what they were designed to do. This means that, without exception, these solutions are not able to adapt to new and changing business needs. Who is willing to invest time and resources on a project to add new features to a COBOL system? Especially when they know that it will never be able to do what new modern system can do – no matter how much time and money is spent.

Products We are in a golden age of business software products – most of the systems we use in business are product based and created by a vendor that is specializing in a type of business that we are in. The main advantage of a product over custom solution is that the system is not made for any specific client. It is made for a specific industry and solves a number of use cases by offering configurable and customer managed setup. This means that vendors can keep investing into R&D and improving features, speed, security and making the product better without worrying that they will affect the business in a negative way.

Just like in any industry, market forces

TEch Report start to dictate the pricing and only the best products survive. As a whole this is great for the business – it promotes lower operating costs and allows business to continuously improve and evolve the business model. However, this leads to a more complex business model and the need for more software products that need to be interfaced to each other and/ or legacy systems in order to provide a smooth transition from one part of the business to another. It doesn’t take long to end up with a fairly complex maze

and simplifies the building of products.

When it comes to our smartphones we know the products as apps.

So, why does everyone love apps?

Well, for one – there are so many of them and they simplify and enhance our lives in such radical ways that they are sometimes eliminating entire industries.

Having to choose between buying a $350 Garmin navigation that will be out of date within 12 months and downloading a free Google maps application that will always be accurate and never needs an

“A lot has changed from the pre-Internet era. Today, the best remarketers are multidimensional …” of products and legacy systems that are working well and providing great value, but are very hard to replace.

Platforms There are many different types of computing platforms, and we are all more familiar with them than we think.

In fact, we all have one of them with us all of the time – it’s our smart phones.

So, what makes the platform different from a product? In today’s terms, platform is anything that developers can build upon. So platforms provide an environment that in some way enables

update is not really much of a choice.

It’s simply not a fair fight. The Google app has an entire platform to rely on – it doesn’t have to worry about the costly hardware, the sensitivity of the touch screen, the Bluetooth connectivity or any of the things that Garmin has to do before even thinking about having a product.

That is the power of the platform. We download new apps and they just work – we don’t have to configure them and make sure that they know how to use a camera and that the two buttons on the side control the volume. It all just works.

App developers love it – they can focus on what really matters and what they are good at. They can solve a problem and address a need that they identified and get their product to market very quickly.

Users love it, because costs are low, selection is high and if it doesn’t work we just replace it with another app.

But that’s the world of consumer apps.

The world of business apps is much more complicated and such things are not possible. Correct? Not really – given the right platform the same principles apply.

So, what is the right platform – does it exist today?

More than 100,000 organizations and over two billion transactions per day say that Salesforce is exactly that.

Salesforce is the company that has the ‘engine’ and in order to demonstrate this great platform they built a killer CRM application on top of it. That’s why it’s wrong to think of Salesforce as a CRM company – it’s so much more.

With thousands of apps available in the Salesforce app marketplace businesses are able to pick and choose the ones they like and transform their business processes overnight. The entire platform is hosted on a cloud, always available and secure as well as instantly available on our favorite other platform – the smartphone. No integration, no development – it all just works.

Vladimir Kovacevic is a chief technology officer at Inovatec Systems.

Inovatec specializes in providing innovative software solutions and helping businesses establish a scalable, data driven business model within the automotive and equipment finance industry.

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19

EVENTS

WHERE TO GO. WHAT TO SEE.

Find out more about the conferences, exhibitions, seminars and meetings in your industry

2015

April 21

May 13-14

Equipment Leasing & Finance Association ELFA Captives Best Practices Roundtable Chicago, IL www.elfaonline.org

Equipment Leasing & Finance Association ELFA Capitol Connections Washington, D.C. www.elfaonline.org

April 21

June 7-9

Equipment Leasing & Finance Association ELFA Independent Best Practices Roundtable Chicago, IL www.elfaonline.org

Equipment Leasing & Finance Association ELFA Credit & Collections Management Conference Washington, DC www.elfaonline.org

April 21-23

September 16-18

Equipment Leasing & Finance Association ELFA Executive Roundtable Palm Beach Gardens, FL www.elfaonline.org

Equipment Leasing & Finance Association ELFA 27th Annual National Funding Conference Chicago, IL www.elfaonline.org

Equipment Leasing & Finance Association ELFA Operations & Technology Conference Philadelphia, PA www.elfaonline.org

April 2

April 30-May 2

September 16-18

Lloydmedia Inc. - Payments Business Magazine Mobile Payments Workshop Toronto, ON http://www.paymentsbusiness.ca

Nat’l Assoc of Equip Leasing Brokers NAELB 2015 Annual Conference Phoenix, AZ www.naelb.org

Equipment Leasing & Finance Association Lease & Finance Accountants Conference Philadelphia, PA www.elfaonline.org

April 15-20

Equipment Leasing & Finance Association ELFA Legal Forum Nashville, TN www.elfaonline.org

September 16-18

May 6-8

October 25-27

Factoring Association 20th Annual Factoring Conference New Orleans, LA www.factoring.org

Equipment Leasing & Finance Association Public Sector Finance Forum Denver, CO www.elfaonline.org

Equipment Leasing & Finance Association ELFA 54rd Annual Convention San Antonio, TX www.elfaonline.org

April 21

May 11-12

Equipment Leasing & Finance Association ELFA Bank Best Practices Roundtable Chicago, IL www.elfaonline.org

FC Business Intelligence Analytics for Insurance Canada Summit Toronto, ON www.analytics-for-insurance.com/ canada/

March 5-6 National Heavy Equipment Show (NHES) Toronto, ON www.nhes.ca

March 12 Equipment Leasing & Finance Association 13th Annual IMN/ELFA Investors Conference New York, NY www.elfaonline.org

March 15-17

National Equipment Finance Association NEFA 2015 National Equipment Finance Summit Long Beach, CA www.nefassociation.org

April 15-18

May 3-5

Canadian Finance & Leasing Association CFLA Annual Conference 2015 Gatineau, QC www.cfla-acfl.ca

Visit us online www.canadianequipmentfinance.com/events.html 20

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

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21

your Team

Truth in Advertising ‘The best policy’ for marketing success

By Robert Adeland

fter more than 35 years in the advertising business, I’ve heard all the jokes… for many people, the idea of ‘truth in advertising’ is the ultimate oxymoron. The cynical and traditional view of advertising is that honesty is always the first victim of advertising strategies. But the truth is, in our experience, ‘truth’ is the keystone for long-term success.

Outrageous promises and unsupported claims will always attract attention and maybe even make a sale. For the longterm, though, you rely on repeat business and referrals. You get neither when you fail to make good for your customer.

But when you over-promise and underdeliver, you undermine every chance to really build your business.

In these days of instant communication and social media, bad news travels worldwide in a blink.

Anything that smacks of dishonest advertising will be called to account, loud and clear. Years of conscientious work to build your brand and reputation can be undone overnight.

The planning process we bring to our clients is based on learning and searching for the truth. We work with our clients to make an honest assessment of the strength and weaknesses of the product, and to profile the customers who will fit best with what we can deliver. That ‘fit’ becomes the foundation of the marketing plan.

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The great thing about building your brand on the ‘truth’ is that you never have to second guess and you never have to apologize. You deliver on your promises and your customers thank you for it.

When you build your business on true values, honest promises and consistent delivery become part of your culture.

Your company becomes known for integrity, and that becomes a bankable commodity. It can open doors for business growth that you don’t even expect.

Recently, one of our clients experienced the rewards of building an honest brand directly. The company is a family-owned manufacturer of specialized transport trailers, with traditional family values. They take personal pride in the quality of their products, and they are deeply committed to preserving an unsullied reputation for aftersales service.

Meanwhile in Australia, a leading forestry operation, was searching for a better solution for transporting wood products out of the forest and down to the ports. The forester contacted our client after a competitor failed to respond. Our client replied to his email the next day, and they soon began discussing a business plan to ship trailer components from Canada for assembly, with their help, in Australia.

Together, they were able to overcome the numerous hurdles to establishing a new import/export channel and licensing for a new transport jurisdiction. The initial

CANADIAN EQUIPMENT FINANCE | July/August 2015 | canadianequipmentfinance.com

sale was for 8 B-Trains and the first sets of trailers hit the road ‘Down Under’ just months after their initial contact.

Our client and their new partner both credit the success of the effort to their mutual trust. On the Australian end, the forester came and visited a number of long-time customers of our client personally in Canada and the U.S. He had already reviewed their website marketing and literature, and quickly learned that this was a firm that was good to its word. During a conversation with one of the manufacturer’s clients in New Hampshire, they remarked, “Obviously you like the best gear because this is the best you can get.” Moving forward on little more than a handshake, our client was able to launch into a new territory on the far side of the world, in record time.

Not every brand promise is going to suddenly open new sales opportunities in a distant sub-continent, of course. But this case does demonstrate how a habit of marketing and serving customers truthfully can give all your customer relationships a strong and resilient foundation.

Even in advertising, honesty really is the best policy.

About the author; Prior to establishing Marketing Strategies & Solutions in 1997, Robert Adeland was familiar with both sides of the marketing desk. Over the past 35 years, he has established himself as a professional marketer in both Canada and the U.S. Marketing Strategies & Solutions is an integrated marketing firm specializing in B-2-B communication. He can be reached at Robert@marketingstrategiesandsolutions.com www.marketingstrategiesandsolutions.com 1 Truth in Advertising

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