Lloyds TSB looks to vendors

UK bank Lloyds TSB is to facilitate equipment sales in the pharmaceutical manufacturing sector through bespoke financing programmes. The bank is renewing its interest in the vendor finance market, seeking to stand behind the finance programmes of large pharmaceutical manufacturers and distributors.

According to the bank, the vendor finance market is now less volatile and more conducive to relationship financing, meaning it is prepared to step into the shoes of the captive financiers - namely larger manufacturers that offer finance. This allows the company to concentrate on its prime objective of manufacture and sale. A specific goal of Lloyds TSB is to form relationships with established companies looking to extend pharmaceutical equipment sales programmes in the UK.

"As competition intensifies, banks are often better placed than captives," says Charles Taverner, director and head of vendor finance at Lloyds TSB. "The captives do not have the same capacity to meet increased funding requirements and so have to work harder to keep up, causing them in effect to run a business within a business with all the associated labour and reporting costs. This is where we come in."

According to Taverner, vendor finance can be used to finance a wide range of capital equipment in the pharmaceutical manufacturing sector. But captive financiers are finding it difficult to meet demand for increased capacity at the high end of the market, while mid-market funders are being squeezed by tight margins.

In this environment, Taverner expects vendors to select funders that can offer complementary support specialisms and added value, such as particular market or product experience, residual value participation, asset management, or even deal size capability, since these factors ultimately affect manufacturers" sales-aid pricing, profitability, and sales volumes.

He also expects to be supported by a trend whereby vendors want to deal with a smaller number of funders. "A relationship cycle appears to be underway, in that captives no longer want to deal with 15 different funders," he says. "They now choose a small club of funders, depending on volume opportunity, so as to ensure that each has an acceptable "share" of the business and therefore maintains an interest."

Taverner sees mutually productive relationships developing in pharmaceutical manufacturing. "It generally takes up to nine months to implement a vendor finance programme, from inception and training to marketing. This gives the bank and manufacturer ample time to provide confidence to the sales force," he points out.

A further opportunity for manufacturers to release cash is by refinancing their existing outstanding equipment finance portfolios with the bank. This also allows them renewed capacity in their programme, which they can use to approach new customers.

Taverner sees the UK as the key target for the time being. "Before we can consider an expanded European or international offering," he says, "it is essential for Lloyds TSB to build a strong reputation in the sales-aid sector in the UK, where many of our key corporate relationships are also to be found."

The bank hopes that relationships with foreign entrants into the UK pharmaceutical manufacturing marketplace may in time lead to an expansion into such companies" home markets.