Consolidation trend still making noise
By Furniture Today Staff -- Furniture Today, August 15, 2004
High Point — Consolidation has been the big word in the world of furniture factors for the past few years, and the trend is still making noise.
Last year, industry leader CIT Commercial Services acquired the factoring assets of two other top-10 players — HSBC Business Credit and GE Commercial Services.
In the preceding decade, CIT had bought the factoring assets of firms including Barclays Commercial, Congress Talcott and Heller's.
In 2001, GMAC Commercial Finance bought the Bank of America's factoring arm. In 1997, North Carolina-based banking company BB&T Corp. acquired Phillips Factors.
What has resulted from these and other acquisitions, according to factoring executives, is a barbell-shaped industry model with some large companies on one end and a number of small, boutique operations at the other — but not many midsized firms.
Besides CIT, the leaders in furniture factoring are GMAC Commercial Finance, SunTrust, Capital Factors and BB&T. To be significant to the furniture industry, future mergers would have to involve two or more of these players, all of which are divisions of companies with billions of dollars in assets or sales.
"I expect there to be in the next couple of years a little more consolidation in the industry," said Doug Monda, executive vice president and Southeast regional manager for GMAC Commercial Finance.
But neither he nor any other executives at the top factors would predict who might buy whom. (In addition to the top five furniture players, there are several other prominent U.S. factoring firms, such as Century Business Credit, Milberg Factors, Rosenthal & Rosenthal, Sterling and IBD, all based in New York, which focus chiefly on other business segments such as textiles and apparel.)
Meanwhile, the growing size of some companies allows others to tout their smaller, supposedly friendlier size.
"Some still prefer dealing with a smaller factor," said Michael Sullivan, executive vice president of Capital Factors. "We think we have tremendous opportunity because of all the consolidation. We're not one of the Goliaths of the industry."
Mergers create opportunities
Another executive at one of the smaller top-five firms said some furniture manufacturers are shifting some business to avoid having all their factoring handled by one company. These are producers that had been doing business with both parties in a merger.
Goliath did have his strong points, however. A large presence in an industry helps companies build large databases on retailers — important in figuring credit risk and deciding quickly whether to approve a sale. In addition, a large volume of business helps justify investments in technology, crucial in a fast-paced financial world.
Driving down costs
Terry Oelschlager, senior vice president and regional manager for industry leader CIT Commercial Services, said the factoring business in a way is following a trend at retail.
Big retailers are engaging in a "Wal-Mart syndrome," he said, using their increasing size to put price pressure on the supply chain. This affects rates for a financial service such as factoring, which is part of the manufacturer-to-retailer chain, and means that companies have to be large and efficient to deliver the services at a competitive cost.
Sullivan of Capital Factors said the increasing size and technological sophistication of firms has indeed kept expenses down, with electronic data transmission cutting the cost of handling invoices and compiling reports. This efficiency is passed along to clients, he said.
"We're still doing factoring at rates at or below where they were 20 years ago," he said.
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