“Sophistication of the marketplace, sophistication of the lenders,
sophistication of the competition involved and how everything is so
tightly-margined today makes it so that you have to be spot-on and
find the hidden value in everything,” he explains. “Ten years ago,
you might have been okay if you were 90% accurate and got over the
finish line. Maybe 20 years ago if you were 50% correct you were fine.
Now you need to be 100% accurate.”
McGrail notes that the company puts a premium on accuracy — it
is willing to walk away from some transactions rather than succumb
to competitive pressures and overvalue deals.
“Occasionally, a lender trying to take out another lender may say
to us, ‘in order to win this loan, we need to beat this appraisal.’ We’ll
take a look at it and say that we think it might be overvalued. In most
cases, we will not take that assignment, because nobody wins if we
overvalue any transaction. It’s not a position we ever want to be in,
because at the end of the day, the bank is looking for us to be the
expert and decide if the loan is a good investment.”
Advice to Lenders
Both Kane and McGrail emphasize the importance of an accurate
appraisal for asset-based lenders.
“The key thing I would say to a lender who is about to make a
loan, is that it’s really important to get an appraisal from a company
that has experience in whatever industry you’re about to lend to,”
says McGrail. “Not only do we know the asset values, but when doing
an appraisal, we may go out and visit a company, talk to key management (which, of course the lender should always do for itself) and get
to know them a little bit. I would always look at how a company’s
comp sales are doing. Are they trending down, and do you think that
trend will reverse itself? A lot of times, that’s a sign of a real problem.
“One thing that we find that’s really important is once you make
a loan, you need to continue monitoring that company to see if
things have changed,” he continues. “Values can change. Don’t wait
until the last minute to address something if you see a company has
troubles. Reach out and ask questions. Lenders should continue to
monitor, and if they see issues, ask questions and follow up. There are
trends that clearly show when a company is having issues.”
With respect to their career paths, both Kane and McGrail clearly
enjoy presiding over an ever-growing enterprise. And both seem to
relish working in such a fast-paced field.
“When I was doing accounting, I knew basically what I was going
to be doing at every point of the year,” Kane recalls. “This is such an
unpredictable business. It’s always different. There are no replays.
It’s a big challenge, but that’s what makes it so exciting for us.” abfj
NADINE BONNER is editor of ABF Journal.
Sharing the Risk
Today, Tiger Group is participating in many high-profile
liquidations, often partnering with other members of the
“Big Four.” Kane points out that the arrangement is similar
to the one that lenders have when they syndicate loans, for
many of the same reasons. The companies have to bid on
these liquidations, and participating jointly enables them
to share the cost and lower the risk for each individual
company. Also, Kane says, joint participation enables
the companies to spread staff members among the many
different deals that are happening, and have the most up-
to-date liquidation values for various asset classes.”
With the retail industry in distress, business is brisk.
Similar to a syndicated loan, a large liquidation has an
agent who manages the deal. Tiger is the administrator for
the Gander Mountain liquidation with the other members
of the Big Four as partners. Tiger, notes Kane, had been
working with Gander Mountain before the bankruptcy, so
it was familiar with the company.
“In this case, the groups involved paid close to $400
million, guaranteeing there would be a certain return on
the inventory,” says Kane. “And if the return, less our
expenses, is not that number we lose money. Let’s say
you guarantee $400 million and bring in $390 million, net
of expenses. Although you were off by just a very small
percentage, you would lose $10 million. This is an unusu-
ally large transaction, but it’s a good example of why we
joint venture on deals of this magnitude.”
Originally, Kane adds, the Big Four companies were
bidding against one another for the Gander Mountain liqui-
dation. “Our solution was to partner,” Kane says. “Nobody
wanted to go any higher, but by paying more overall and
spreading the risk, manpower and expertise among all four
of us, we moved the process forward.”
Other co-venture agreements have dramatically
bolstered Tiger’s access to global sellers and buyers in such
industrial verticals as oil and gas, mining, and high-tech
manufacturing, Kane notes.
The competition in today’s high-profile liquidations is
stiff, McGrail adds, and so it is difficult for new players to
enter the market.
“There is a huge barrier to entry into our field because
of the capital required and the infrastructure that has to
survive the ups and downs of this very cyclical industry,”
he explains. “Assets ranging from real estate to equipment
can also be highly specialized, so you have to understand
precisely how the specifics of a given asset can dictate
Accuracy of Appraisals
For lenders, of course, the goal is to avoid liquidation and
make a profit on the money they lend. At that point, Tiger
Group’s appraisal side is more critical. Again, technology
has increased accuracy of the evaluations.
“Today you can analyze inventory items down to the
SKU since technology has gotten much better. That has
certainly changed the game a little bit where you can really
drill down into the small lumps and analyze the information properly,” says McGrail.
“One thing that we find that’s really important is once you make a loan, you need to continue monitoring that company to
see if things have changed. Values can change. Don’t wait until
the last minute to address something if you see a company has
troubles. Lenders should continue to monitor, and if they see
issues, ask questions and follow up.”
— Michael McGrail