In 2005, Gaëtan du Halgouët and Thibaut Robet founded Chateaudun Crédit, a French specialist in factoring advisory. They discuss with us the usefulness of factoring in the current environment and its role in M&A contexts.
Décideurs: Present Chateaudun Crédit
Thibaut Robet: Chateaudun Crédit is today the leading factoring advisory firm in Europe. We help French companies and international groups implement the most efficient receivables financing solutions. Our work includes assessing financing potential and managing the entire project – from the tender process to the first drawdown. This includes negotiating terms and conditions, managing customer risk (credit insurance), training teams, and IT implementation.
Has the factoring market declined significantly in 2020? How do you explain it?
Gaëtan du Halgouët: According to EUF data, in 2020 the factoring market declined by 5.4% in Europe. It fell by 7.5% in France. The sharpest declines were in Italy (-10.8%), the United Kingdom (-12%), Spain (-7.6%), and Portugal (-6.9%). Only a few countries saw slight growth, including Germany (+1.3%), the Netherlands (+1.4%), and Poland (+3%).
There are two simple explanations for this decline. First, many companies stopped operating during the first lockdown and have not yet returned to pre-Covid activity levels. The drop in revenue of factoring clients directly impacts the volumes purchased and financed by factoring companies. The second explanation, observed in several European countries, is the massive distribution of state-guaranteed loans (PGE). These loans, whose repayment was postponed to 2022 in France, covered a large share of companies’ liquidity needs that would otherwise have been financed through factoring.
However, not all companies took out state-guaranteed loans. In 2020, some chose instead to set up large pan-European factoring programs. We supported several of these major international companies, mostly owned by private equity funds.
“Not all companies took out state-guaranteed loans and chose instead to implement large factoring programs.”
How did Chateaudun Crédit experience 2020?
T.R.: While our French activity slowed significantly, our international business allowed us to get through the crisis and maintain 10% growth. In 2020, we implemented more than €700 million in new factoring financing lines.
It was also the year we launched new modules in our factoring software, particularly to improve customer risk tracking and credit limits. We also began redesigning our websites to improve visibility and simplify communication.
Factoring is a balance-sheet financing tool – why is it of interest to private equity funds?
G.H.: First and foremost, factoring offers the best cost-to-liquidity ratio among financing tools. It provides the highest possible funding amount at a very low cost. LBO-backed companies typically have committed credit facilities (RCF – revolving credit facilities) to meet liquidity needs. These facilities are limited in size and always include covenants requiring early repayment in case of financial distress. In such cases, factoring remains fully operational. Moreover, when it is non-recourse, it does not impact leverage ratios. It therefore significantly increases liquidity while improving financial statements. Increasingly, private equity funds require their portfolio companies to use factoring.
“Factoring is the financing tool with the best cost-to-liquidity ratio.”
Which types of investment funds use this financing method?
T.R.: We work extensively with majority LBO funds, both domestic and international, that are actively involved in their portfolio companies. Special situations funds, particularly turnaround funds, almost systematically use factoring to secure liquidity in their portfolio companies.
When do private equity funds use factoring in their portfolio companies?
G.H.: This topic is usually considered before the acquisition and implemented in the months following closing. In some cases, we have negotiated it immediately after signing for financing available on the day of closing. It is often used to finance external growth, support refinancing, or facilitate dividend distributions.
How are you preparing for the expected economic recovery?
T.R.: In 2022, companies will need to finance growth while absorbing their state-guaranteed loans. 2022 must be prepared now. At Chateaudun Crédit, we are preparing by recruiting new talent in both advisory and IT teams. Eight hires are underway to increase our staff from 30 to 38 employees. At the same time, we are working on a new version of our factoring and credit insurance software.
Source: 2021 edition of the Capital Investment Guide, Décideurs Magazine.