GANANN:  BMO Harris has a very strong reputation in the marketplace. Through all of my own positive interactions with the ABL group in Chicago over the years, and the consistently solid feedback that I had from peers here in the Boston Retail Finance community, it really solidified my interest in joining the team from the start. 

BMO has had a lot of activity and success in the syndicated market for Retail Finance ABL transactions and that provides a pretty wide platform from which to build a direct-lead origination effort, which I hope to spearhead. I have an extensive network in middle market that ties into that and a background in new-business origination portfolio and underwriting, and I felt like it was a natural fit to help lead this new effort. I am very excited to grow BMO’s presence in the retail ABL community.

What are your short and long-term priorities in the new role?

GANANN:  In the short-term, my team and I have a goal to enthusiastically get out in front of our direct prospects and referral sources, and spread the word about BMO’s support for growing in this sector, particularly growing in the middle market, which I’ll define for my role as targeting $20 to $100 million ABL transactions in retail and consumer, and, ultimately, the creation of a dedicated Retail Finance group and team. 

We’ll continue to pursue opportunities in the larger syndicated market as well, where BMO can play a joint lead arranger role, or a meaningful role in the capital structure.  I think longer term goals include leveraging BMO’s wide web of bankers and retail-focus investment bankers and, honestly, our ABL group’s enormous growth in the past 10 years, and we’ll aim to be a preferred provider of senior secured ABL loans to a wide variety of retail companies.  And I define retail to include wholesale footwear and apparel, other branded consumer products, and e-commerce companies. 

BMO Harris has a long history in food retail and food distribution, as well, and if I include those names, we have more than billions of dollars of committed capital out to clients across the U.S. in this sector. I’d say if I was to put a number on a longer-term target ratio of lead bank or sole bank deals to participations, it’s probably closer to 50/50.

Mike, please tell us why Michael was such a good fit for the role.

SCOLARO:  Mike brought to us a unique business background, both his inventory experience and his ability at previous employers, including his background at prior Retail Finance bank platforms where he was direct marketing loans that are very similar to what we’re going to try to accomplish at BMO Harris.

In a press release about Michael’s appointment, Mike Scolaro said “the BMO asset-based lending team has been experiencing exceptionally strong growth and retail finance is viewed as an opportunity for even further growth.” Where do you expect this growth to stem from, especially in light of what seems to be nonstop retail apocalypse headlines?

SCOLARO:  Let’s answer that question in a couple of ways because I’m going to jump in at the beginning just on our growth and then I’m going to let Michael talk about exactly where he is going to be focusing in on.   

We’ve doubled our business over the course of the past three years and we intend to double it again over the next three years.  And we’ve done it, in part, by expanding geographic presence with opening up offices nationwide and we’ve done it by establishing industry verticals in metals, in food, and now in retail. And we believe that that combination has allowed us to attract tremendous talent in that we’re going to be able to meet our increasing goals.

In Boston, we just hired Brian Tammaro and as a Managing Director and he is doing an awesome job in our Boston office. He is going to be responsible for covering the Northeast from a core ABL perspective and we’ll be continuing to build that office out.

GANANN:  And I’ll just add to that specifically about retail and the “apocalypse”. The retail apocalypse, itself, inherently by its nature is a reason for being able to achieve growth in this type of business. The headlines have suggested otherwise, but there are many pockets of retail and consumer landscape that perform well and present financing opportunities related to M&A growth in the sector. So, it’s not just the distressed retail, there’s a lot of growth elements, branded consumer names, et cetera, that represent opportunities for us. 

Now, we can support the success stories as well as companies in transition.  We’re going to be focused on the restructuring community, obviously, with opportunities to do DIP and exit facilities in retail and expect to see new business opportunities from restructured balance sheets.

I mentioned before that we have a wide sponsor coverage effort at BMO Harris, sponsors focused in the middle market, which present a significant source of new business opportunities for us, as well, both existing portfolio companies of those sponsors as well as new investments.  I expect there to be a few transitions likely over the next few months from larger corporate retailers that are converting from cash flow to ABL, which obviously represents an opportunity on the larger syndicated deals for us to play a role as well.

You’ve been in the retail finance industry for 15 years. What do you think has had the greatest impact on the retail industry? Is it just the Amazon effects or is there more?

GANANN:  They kind of go hand in hand. But I would say to some extent, yes, it’s Amazon, although I wouldn’t necessarily lay it all on Amazon for creating the turmoil. In general, the cumulative effect of the evolution of online and e-commerce businesses, and not just for transacting online, but the benefit an omni channel strategy has on brand awareness, as well, has had a big impact on the industry.

The effect is highlighted by the slow reaction of many traditional brick-and-mortar retailers to modify their own models and reach the customer in different ways and those ways can be anywhere from supply chain to marketing or even product mix.

For some, the conversion to that successful online strategy took place many years ago, and others, notably in the sporting goods and department store sectors, that transition was a little too late.  If seeking an effect of that shift to online on the Retail Finance industry, that trend has an indirect impact on the tightening of credit parameters by many bank platforms. And that’s spawned the success of several finance company rollouts that benefit from being unregulated institutions.

I think the most lasting effect of this shift to online on the Retail Finance industry, meaning the banks that play in this space, remains to be seen.  By that, I mean companies with a larger concentration of online revenues have really yet to be tested in a full liquidation, which is the foundation for appraised values and retail ABL lenders’ structures.  Until a large-scale disposition of inventory through an online channel occurs, Retail Finance ABL may be hesitant to get super aggressive on advance rates for that industry sector.

The next decade will tell us a lot about how ABL Retail Finance performs and how the ABL loan structures to retailers may be permanently altered. And it’s partly Amazon, partly online, partly the real estate overhang from the mountains of store closures that have happened in the last couple of years.

SCOLARO:  Disruption begets opportunity. That’s why we’re actively pursuing the space and we’re dedicated to it.