Merchant Factors is now more than just an asset-based lender and factoring firm.
Over the years, and under the direction of Adam Winters, chief executive officer since 2006, Merchant has evolved to become a full-fledged financial services firm. While it still does re-factoring, the firm for the last few years has expanded to include strategic advisory work in the licensing sector and in the area of direct-to-consumer retail.
To reflect the company’s growth and expansion of its financial services, Merchant has re-branded and is now Merchant Financial Group. Its web site has also changed to MerchantFinancial.com. It also has an expanded credit facility of $372 million, from an existing line of $323 million from IDB Bank.
The services it has been known for since inception in 1985, under deceased cofounder Walter Kaye, continues. In addition to factoring, re-factoring is through CIT and Wells Fargo, although one change is that now Merchant can do credit-checks in-house. Re-factoring allows the company to spread the risk on some accounts in cases where clients are taking orders from higher-risk retailers. The company continues to do ABLs, as well as credit lending in the form of small business loans for firms that might be considered high risk.
The core business kept Merchant in good standing during the financial crisis that began in 2008 because the company kept its focus based on key lending credit criteria.
“That [downturn] created an opportunity for us.…The factoring business is recession-proof. In good times it grows and in bad times it provides credit protection,” he said.
According to Winters: “The big lesson…was we have to stay true to what we know. We can’t really compromise credit criteria for growth and the banks were doing that. Some of the independent financial companies [in an effort] to grow, sacrificed some basic principles of credit, [and we’ve seen that] each and every time it will cause an issue.”
Looking at the shifting retail landscape had Winters thinking about how to grow the company.
Its new advisory work in licensing has been boosted through the hiring of Vicki Engel, whose past experience include stints at brand management firms Iconix Brand Group Inc. and Bluestar Alliance. Services include brokering licensing deals and advising firms on the management of their brands.
According to Winters, the firm earns a fee on the licensing deals it brokers. “Our licensing income has been up 120 percent. The pipeline is tremendous. We’ve done deals with Betsey Johnson, Nicole Miller and Badgley Mischka,” he said.
The direct-to-consumer business is focused more toward working with, and lending to, start-ups. From a lending perspective, Winters said it’s always a balancing act regarding the comfort level one has lending money to a company that’s continuously losing money.
“You have to know the real pulse of the business, looking at the monthly sales numbers and be on top of these companies. If they are hemorrhaging, things can go south awfully quickly,” the ceo said.
He also feels that too many venture firms are making valuations based on sales, customer acquisition and customer retention when they instead should be paying attention to earnings.
“I like using a multiple of earnings because it makes more sense. If a company is losing money and there’s no path to profitability, what’s the end game?…I don’t mind investing in companies that are losing money, but I want to understand that the founders have a plan to make money, and are not just growing top-line revenue so they can flip the company at some point,” Winters said.
For Winters, that means reviewing 12-month projections, looking for tangible net worth, a game plan and confidence regarding liquidity for the start-up before Merchant will even consider whether more due diligence is worth its while.