Asset Alliance accelerates

Asset Alliance Group’s Michael Bycroft speaks to Jonathan Welch about the financier’s plans for expansion, having already funded over £500m-worth of coaches and buses

Finance. It’s a subject that can often either make people’s eyes glaze over, or one that they simply don’t understand, but it’s vital to keep the wheels turning. The coach and bus sectors are very different when it comes to their financing requirements, but one thing’s for sure: both are relatively traditional in their outlook. How many coach operators still prefer to buy outright, for example, and own their asset, ‘because that’s how they’ve always done it’? The world is changing though. Vehicles are changing. And operators are changing how they work, especially the major groups, to help address the rising cost of new vehicles and the uncertainties around new energy sources.

So while the public sees ever more shiny new buses, often powered by electricity, in the background companies are working to facilitate these deliveries, be it via purchases or leases. Those companies include Asset Alliance Group, which operates across the transport and logistics sectors, using its own funds along with significant buying power to supply the HGV and PCV industries with vehicles on contract hire, operating leases, finance leases or hire purchase. The Group operates across five sites in the UK, but is headquartered in Wolverhampton.

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The firm’s bus and coach division recently achieved what it called – not without justification – a major milestone, achieving £500 million in funding, equivalent to some 2,500 vehicles, since it acquired coach and bus specialist financier Forest Asset Finance in 2015; and whilst it might seem a lot, the sector only represents a small part of Asset Alliance Group’s overall business.

Led by Forest’s founding directors Michael Bycroft and Darren Fitzpatrick, the company’s bus and coach division has grown rapidly in the intervening seven years, financing fleet upgrades for many national and regional bus operators throughout the country.

We spoke to Michael to find out more about the company and what it can offer, and how its business has developed after eight years in the fold of Asset Alliance Group. “I established Forest Asset Finance in 2004 with Darren. I’d come out of university with a business degree. We looked at the funding market and saw an opportunity in brokerage, which was growing and developing at the time,” he explained.

Finding a niche

“The niche market seemed to be buses and coaches,” Michael continued. “We set up the business, and grew it over the next 12 years and established ourselves as one of the principal bus and coach brokers in the market at that time. We had strategies of what we wanted to do with Forest Asset Finance, and around the end of 2015 Asset Alliance Group started looking to acquire the business. One of our strategies was to move towards an ‘own book’ finance offering, as traditionally we’d only used the brokerage platform, which is something we do still use heavily today. But we thought that we could better service our customers by giving them even more flexibility through own-book funding as an alternative.

“The opportunity with Asset Alliance offered us that option, and gave us the opportunity to take the business on to the next level. It fitted very well from Asset Alliance’s perspective too as they were focused exclusively on commercial vehicles. That business had grown from 2011 up to 2015 based largely on contract hire, and an element of asset sales for end of lease assets. They had been looking at developing a bus and coach offering, and when the opportunity came up, it was too good an opportunity for them to miss. It met our and their objectives. Rather than having to start from scratch, it meant that Asset Alliance had bought an established team, an established business structure.

“Since we were acquired in December 2015, we’ve developed that business, and reached significantly over £500m in those seven years. Since we started back in 2004, that number is nearly £1bn of funding. It’s a significant chunk of funding that we’ve put into the coach and bus industry.”

The business has developed strongly as part of Asset Alliance Group, expanding to encompass sales channels for end-of-lease assets, which were able to build on existing avenues open to Asset Alliance Group through its commercial vehicle operations.

Michael spoke enthusiastically about how the business has developed as part of Asset Alliance. “We ensure we provide businesses with the most competitive opportunities in the market,” he said, “so that they can make an informed decision as to how they want to fund their investment in new vehicles. We have seen strong growth from a customer perspective as well as a business development perspective.

“In the last two years, Asset Alliance has been acquired by Arbuthnot Latham bank, a large private wealth bank and a very high end institution, which was looking to diversify away from its traditional areas. They saw Asset Alliance as a good opportunity to diversify and deploy capital. It’s good news for us; from a funding perspective, it means we have no capital restraints, which means we have the opportunity to grow.

“We’ve also been growing and investing in the teams within the business. We’ve been working to separate out our sales activities, and we now have four distinct sales channels. We have the commercial vehicles team, the bus and coach team, a vendor finance team and now a general asset finance division. Over the last few years we’ve brought in new staff and heads of departments for each of those roles.

“From a bus and coach perspective, we’ve put a lot of investment into the bus and coach market, we’ve taken on a lot of good staff, including Anthony Jones, Scott Burke, and recently we appointed a commercial director into the bus and coach team, Martin Bellis, who used to head up the Siemens bus and coach division. He did a really strong job there, before moving back to Mistral around two years ago. His remit is to continue working alongside Darren, the Sales Director in the bus and coach team. Martin will focus on the strategy and direction, freeing up Darren to spend more time going out and speaking to customers. He will be looking at where we want to be in three years time, and plan what we need to do to get there.”

Martin will also be working closely with the existing commercial vehicle sales team, Michael explained, to give it a better understanding of the bus and coach sector. “One thing we’ve identified,” Michael continued, “is that our team of engineers who go out and inspect commercial vehicles are not necessarily the best ones to inspect coaches and buses. The business is already smooth and slick, but it’s about taking that to the next level. We want to take the half a billion pounds that we’ve done in seven years and do the same in three years.”

Zero-emission agenda

One area in which all parts of the industry are having to adapt is electrification. Although a number of recent deliveries funded through Asset Alliance Group have been diesel-powered, such as those for Whitelaws and Celtic Travel, Michael explained that the growing presence of alternative drives, alongside the predicted end dates for sales and use of diesel vehicles, is already having an effect.

“Where we do fund a diesel product on a residual-based asset finance agreement, we do mitigate the residual value now, so operating a diesel vehicle is not as cost-effective now as it was 10 years ago,” he explained. “That then helps drive the cost effectiveness of green technology.

“Green technology funding is coming down in cost, but if you are seeing the cost of diesel technology slightly increasing as well, the gap between them is getting smaller and you start to move to the realms of asking whether it is now cost effective. If you go purely on the basis of a hire purchase type agreement, then Euro VI diesel is still best, but with residual value type funding, the gap is now becoming a lot narrower.”

Looking at the wider post-pandemic picture, Michael compared the coach and bus industries: “The bus and coach sectors have always been very different. What you see with the bus market is that people are a lot more commercial in terms of their decision-making. We generally deal with companies at board level, and they look at assets differently. It’s a business asset.

”The coaching market is historically different. It’s often family-run businesses where people see assets as something they want to own. It’s not always the most cost-effective way of funding it, but I completely understand why they do it. There are other ways of doing it; the asset might not sit on the balance sheet, and you need to change your mindset to see it as a business tool.

“The coach market is still recovering. We saw an improvement last year in finance requirements, but the majority of the coach market is still hire-purchase-based. Some of the larger operators are using operating lease funding regularly. In the bus market, to a lesser extent you see the smaller operators funding on hire-purchase terms, but because a large amount of work in the bus market is contract-backed, people are now just looking at it as a business tool.”

Perhaps unsurprisingly, the bus market remains more buoyant than the coach market from a funding perspective, Michael added, though still not back to pre-pandemic levels. “But it’s heading in the right direction,” he said. “We do a lot of new energy funding, electric vehicles, mainly on the bus side. We’ve also just done some electric coaches, which is new for us. And obviously we’ve been funding hybrid for years before we moved on to electric.”

Ancillary support

Of course, with new energy vehicles come new ways of ‘fuelling’ and that is something that Asset Alliance Group can address too. “We want the general asset finance business of Asset Alliance Group to be an ancillary support funding tool for our customer base. For example, on the commercial vehicle side, they will fund things like warehouse racking for distribution and logistics agents. It’s not a major asset but it’s a support process for existing customers.

“For bus and coach, the general asset finance team will provide that ancillary support funding for things like the infrastructure. Logically it makes sense as then you have the ability to manage the use of those vehicles. The two go hand in hand. We have already funded infrastructure projects.

“The initial indications suggest that we will see leasing becoming a more common tool. It’s better for cash flow, especially coming out of the pandemic. That’s important when there’s little external funding support available.

“What we have noticed is that there are new entrants coming into the market, and smaller operators being absorbed into bigger groups, who generally see buses just as business assets, and they will generally look at leasing as a funding method. There will still be a market for hire purchase for ultimate ownership, but there’s no innovation in the development of that.”

Michael explained that although there have been a number of smaller companies operating in the coach and bus sector, alongside larger financiers who would work with the sector, Asset Alliance Group is looking to make its mark as the premier supplier in the sector, leveraging both the backing of a much larger organisation whilst retaining specialist bus and coach knowledge. “What we’ve done at Asset Alliance Group is try to bring the volume and scale but also the expertise and specialism back into the market. We’ve got the economies of scale, we’ve got the capital, and we’re investing in recruitment. We want to be the number one across the industry moving forwards.

“We’ve got the best of both worlds. We’ve got the competitive funding that people can get from High Street banks, and we’ve got the knowledge and expertise that you get from a smaller brokerage. We really are in a unique position and we want to continue to grow and cement our position. That will be by new innovation, pursuing new opportunities and by providing a complete service.”

Expansion

Adding value to the core financing business comes in many forms, and for a company like Asset Alliance Group, being able to effectively move on end-of-lease assets is important. “The sales and disposal side is really interesting,” Michael explained. “We want to be known as the best bus and coach finance specialist,” he said, “but we also want to be known as the best sales and disposal business. We can help dispose of end of lease or returned assets, we want to work in partnership to achieve the best outcome.”

With lots going on, Michael is clearly excited for the future of the company and the industry. “Some people come in with a lot of fanfare then don’t deliver. We’ve built the business on solid foundations, and we can go in any direction now,” he said. “We have the flexibility to look at every opportunity that presents itself.

”There is no limit to what the business can offer. It’s about working in partnership with businesses, operators and manufacturers to drive our aspirations but also support them. We will be able to provide funding solutions to support operators with competitive funding options, and more. That’s the difference, we’ll be able to do the ‘and more’ part.

“We have a very experienced and specialist team to support our expansion in the bus and coach sector. They’re very knowledgeable about the products and what’s happening in the market. If you speak to a High Street lender, they can do it but there’s no relationship. It’s just the money. We have the ability to see what will suit the business best and work with operators in partnership to deliver what they need rather than just servicing a financial requirement. We have long-standing close relationships with operators, such as Celtic Travel. There’s a friendship there as well, and you don’t get that unless you’re doing a good job.

“We’re an established player in the market. We come from a really established background. The name isn’t massively well known from a bus and coach perspective as we haven’t promoted it significantly, but over the next two to three years we will be pushing the business forward. It’s built on solid foundations now, and we want to continue to grow,” Michael concluded.

assetalliancegroup.co.uk

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