Over the past several years, Tiger Capital Group has been a partner in some of the most high-profile retail liquidations and store closing sales – everything from the recent Toys ‘R’ Us and Bon-Ton GOBs to Sears Canada, Gymboree, Gander Mountain, HH Gregg, Bebe, PayLess Shoe, and Gordman’s. But there’s a great deal more to the New York-headquartered company than retail liquidations and appraisals.
In a recent interview with ABL Advisor, Managing Member Dan Kane and Chief Operating Officer Michael McGrail reflect on Tiger’s moves to diversify the company’s offerings to the asset-based lending community, consumer and commercial/industrial companies, and insolvency professionals; and they explain how these moves serve as the platform for ongoing growth.
ABL Advisor: How would you describe the level of activity in Tiger’s commercial and industrial appraisals division over the past several years and what is driving this activity in 2018? What factors will be most influential on Tiger’s commercial and industrial appraisal activity in the coming years?Dan Kane: Tiger’s commercial and industrial (C&I) appraisal practice has grown exponentially over the past five years, with C&I appraisals now accounting for more than 75 percent of all Tiger appraisals. The practice’s expansion has cut across all industries, with no single sector fueling our growth. The main source for our C&I growth has been in the continued development of strong partnerships within the ABL community. Looking forward, our ability to adapt to changes in the C&I marketplace, as well as our understanding of how those changes affect asset values, will determine our future growth. This means we must continue to be highly responsive to our clients’ needs and stay at the forefront of the evolving liquidation landscape.
ABL Advisor: What approach to commercial and industrial appraisals is Tiger employing that you would consider unique in the commercial and industrial appraisal business?Michael McGrail: As the lending market has gotten increasingly competitive, lenders have sought unique solutions to gain an edge, often by trying to identify opportunities to add liquidity for borrowers. However, there can be a fine line between identifying potential additional value versus adding more risk without support.
Tiger’s success in helping its partners win deals and avoid risk invariably begins with strong communication between our clients and ourselves. The more in-sync we are, the better we are able to understand the situation and look for opportunity. Tiger’s appraisal team uses the lessons learned from our liquidation group, along with our cutting-edge data analytics, to find pockets of value (or risk) where others are often left making assumptions.
There are three core attributes to our appraisal team that are critical to identifying both value and risk:
Understanding Complexity: As wholesalers and manufacturers have adapted to increased competition by modifying their business models, it has become much more common for borrowers to interact with more complex business models. For example, many wholesalers now closeout merchandise directly to consumers through alternate channels. Instead of selling to jobbers, many now provide e-commerce fulfillment services. Both our liquidation and appraisal teams have evolved to reflect these realities. In fact, it is rare for any appraised company to fit squarely inside of the ‘traditional ABL box’ – almost every company has unique attributes that merit a distinct set of assumptions and conclusions.
Scope of Work: Aside from just providing liquidation values, Tiger attempts to identify the risks that clients might not otherwise know about. For example, we are often asked to only appraise a certain selection of assets, or we might be asked to appraise assets on a desktop basis. The traditional appraisal mentality is to appraise in the manner that the client has requested. However, the scope of work can sometimes impact values in a way that a lender might not foresee. In those instances, we make sure to communicate with our clients about the potential impact to ensure there are no surprises.
Analytics: Tiger has always had cutting-edge analytics and has developed various proprietary methods to solve for gaps in critical data that appraisal clients’ systems often lack. Thus, where appraisal firms are often left making assumptions, Tiger’s analytics allow for real clarity of data. Due to the strength of the analyses, both lenders and appraisal clients have asked us to perform ongoing data analytics separate from appraisal services.
ABL Advisor: Tiger has been growing its Corporate Valuation Services offerings over the past year. Please describe this business for our readers in greater detail and explain why Tiger has been strategically growing this segment of its business?
Kane: Led by Karthik Vasudevan and Jeff Ruettiger, Tiger’s Corporate Valuation Services division has emerged as a leading provider of valuations of brands, other intellectual property, and recurring-revenue assets such as contracts and rental equipment. This division has been pivotal in helping ABL lenders win mandates for strategic and sponsor-backed transactions in deals with “sticky revenues” and/or low tangible-asset coverage. Sponsors also use Tiger’s valuation services to complete post-acquisition balance sheet work. This has rounded out Tiger’s valuation services to help dealmakers pre- and post-transaction with debt finance, loan syndication, and financial reporting.
ABL Advisor: In recent months, we have seen Tiger providing lending solutions to select companies in various sectors. Please tell our readers about this new lending focus and the opportunities you foresee in the middle-market lending arena in the coming years for Tiger.
McGrail: Although Tiger has always been in the lending business, our direct lending of late has been particularly active across the consumer products and energy sectors. Tiger’s strength is leveraging our institutional asset knowledge, through both our valuation and liquidation professionals, to find hidden value and make sound lending decisions. In addition to our direct lending, in the past we have also discreetly partnered with larger, special-situation debt platforms. To better serve our clients’ needs, and given the robust level of activity we are seeing off the Tiger platform, we are now in the process of expanding our debt capabilities.
ABL Advisor: Tiger has also moved into appraising and acquiring accounts receivable portfolios. Please describe this business for our readers and explain why Tiger has moved into this new business line.
Kane: There have been many complex transactions in recent years that have required a single purchase solution of all asset classes in a commercial or retail bankruptcy scenario. On the appraisal side, it is not uncommon for debtors to pledge accounts receivable (in addition to inventory, real estate and machinery and equipment) as collateral on an asset-based loan. Being able to appraise and/or purchase accounts receivable assets requires years of purchase and liquidation experience. Bruce Passen, Managing Director of Tiger’s accounts receivable division, has over 30 years in the purchase, collection and appraisal of accounts receivables, giving us the ability to offer clients multiple options when looking for an appraisal, an outright purchase, a guarantee or an “upside sharing” arrangement for any and all asset classes. Our mission is to be a single solution for the entire asset portfolio.
ABL Advisor: Retail liquidations are a large part of Tiger’s business as noted in the beginning of this article and it is anticipated that this trend will continue for quite some time in this sector. Are there any specific verticals within the retail sector you believe will be more vulnerable to rapidly evolving consumer buying practices?
McGrail: Retail is a living, breathing organism in which cells die, evolve, or are replaced by new, stronger concepts. In my 20 years at Tiger we have seen a continuous evolution of the retail space. Past changes include the purging of chains in the discount department store, movie rental, music, supermarket, electronics, tween-based apparel, sporting goods, and toy sectors.
Amazon is the latest disruptor to the retail space, but there have always been catalysts of reform within retail. The advent of department stores pulled business from specialty retailers; category-killers put down smaller rivals; malls killed small-town retailers; and the Walmart effect made rival discount department stores and certain supermarket chains obsolete. Retail as we know it is always under attack. It needs to continually evolve to survive.
At Tiger, we anticipate that mall-based retailers will continue to be under pressure as mall traffic significantly decreases and sales continue to decline for C- and D-ranked properties. Anchor tenants continue to abandon these locations, leaving small-footprint stores, usually located mid-mall, struggling to attract customers without the pull of a strong anchor. Large-format retailers with underperforming sales per square foot also need to adapt. Many of these stores are burdened by slow-turning inventory that is filling otherwise-dead space. The locked-up capital requirement to carry this inventory does not always make sense. We expect these stores to go through some dramatic changes in the next decade.
Independent furniture retailers will struggle over the next few years, as low-cost retailers such as Bob’s Discount Furniture and Ashley Furniture continue to open smaller-footprint stores nationally. Adding to the independent’s challenges are the shifting buying habits of younger shoppers. Millennials are happy buying furniture from Ikea, Wayfair, and other online retailers. They prefer convenience, low price and speedy delivery over established brand names.
E-commerce sales continue to grow disproportionately in these and other verticals. In clothing and shoes, for example, ecommerce sales rose from 5 percent in 2008 to 28 percent in 2016, according to the investment bank PJ Solomon. By comparison, e-commerce sales still account for only about 7 percent in grocery, 15 percent in pet supplies, and 25 percent in office supplies. At Tiger, however, we expect that to change soon: Players such as Staples, Chewy, and Amazon are ramping up. They promise to make the Internet a more-formidable force in these sectors.
Finally, retailers that sell commercially saturated brands will be challenged. Think sporting goods and Nike athletic shoes. There is nothing unique about this inventory and it is available at competitors, specialty runner/shoe stores, Zappos, and other omni-channel retailers. It can also be purchased with one click on Amazon. Whoever supplies the best shopping experience will ultimately win this war.
This article originally appeared in ABL Advisor: November 2018