GE Capital Sale Could Shake Things Up for Restaurants
In a move that could bring on tremendous uncertainty for commercial franchises across the nation, General Electric announced in April that it would be selling the commercial lending operations of GE Capital, a major financial subsidiary. This is part of a broad push to simplify and reduce the size of the company’s financial business, and focus future GE capital endeavors more on its industrial, manufacturing, transportation, aviation and technology verticals - in other words, on the things that GE makes.
Included in this sale is GE Capital, Franchise Finance, a commercial lending division with approximately $6 billion in assets, and which finances more than 2,000 customers and 14,000 properties, according to Nation’s Restaurant News.
What could this mean for restaurant businesses?
For now, the future isn’t entirely clear, as GE hasn’t yet announced the specifics around timing, and despite the company’s statement that it intends to sell GE Capital, Franchise Finance as a complete business unit, questions remain as to whether it will sell the entire group or disband and sell the loans separately. Several companies are eyeing the commercial lending division as a whole, including Apollo Global Management, Wells Fargo and Blackstone, reports The Middle Market.
While the sale of these assets could open up opportunity for competitors in the middle-market lending sphere, it brings up some uncertainties for restaurants that have relied on the company for financing. Furthermore, it could shake up the overall middle-market lending landscape, the implications of which could reach many more restaurant businesses.
For some, it could be an ideal time to sell assets, as interest rates are low and ample liquidity exists within the industry to complete the sale, according to an article in the May 2015 issue of Restaurant Finance Monitor. Furthermore, the current lending landscape is characterized by plenty of healthy competition for restaurants, so there are a variety of large lenders in the space with enough demand to pick up the slack – for now.
Moving forward, we could see regulatory issues arise for restaurants as the lending space changes and restructures to accommodate this major sale. GE’s designation as a non-bank Systemically Important Financial Institution (SIFI) brings about a variety of regulatory hurdles, and restaurant lenders also face a unique set of regulatory challenges.
Should GE Capital choose to sell the commercial lending division as a unit, the company can maintain its operational system and its staff, which would benefit the restaurants that the division lends to. With so many major players eyeing the commercial lending division, we could see a deal in the coming weeks. When that happens, restaurants will get an answer to one of the biggest question marks surrounding the sale, but the deal will likely raise even more questions for restaurants and the middle-market lending space as a whole.
Do you have questions about the potential impact of the GE sale on your restaurant? We can help. Contact your BDO Restaurant Practice professional for more information.