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The TSL Interview: Michael D. Sharkey: Celebrating 40 Years in ABL
September 20, 2019
By Michele Ocejo
Sharkey is a past president and chairman of Secured Finance Network. He is also past president of the American Brain Tumor Association.
Sharkey is a graduate of Rutgers University and J. L. Kellogg Graduate School of Management at Northwestern University.
Here he discusses his long career, the outlook for the industry and Fifth Third’s acquisition of MB.
You celebrated 40 years in the industry in 2018. How did you get your start in the industry and what made you stay?
After I graduated from Rutgers, I was fortunate to be recruited into U.S. Steel’s management training program. When I graduated from that program two years later, I decided I wanted to use my accounting degree and joined what was then GE Commercial Corporation (GECC) as a field examiner. GE was a great training ground for ABL back then and I rapidly moved from field exam to underwriting and then became an account executive. The reason I stayed in ABL was that the ABL industry presented great opportunities for rapid advancement. I was an SVP and head of credit for Union Bank’s ABL group in California by the time I was 32 and became president of Stanchart Business Credit at the age of 33. I think the reason that I refused other offers and continued to stay in ABL for all these years is that I have always felt like I am still learning and still being challenged to take things to another level.
The issue of hiring and retaining great employees is raised again and again. What do you think can be done to attract and retain the best of the best?
That is a great question and, in fact, the most important issue anyone faces when running a service-oriented business. I once heard Larry Bossidy of GECC say that the single most important responsibility of a CEO is to be the head of player personnel and to constantly be looking to strengthen and improve the team. I have found that to attract the best people you need to maintain a first-class organization and a great reputation. Experienced people in the industry know where the best places to work are and want to go where there will be not only opportunity, but stability. We have had great success recently hiring training and retaining young people. You need to have a robust training program and present those individuals with regular opportunities for advancement. Even with our successful training program we occasionally need to augment staff with experienced personnel. Strong BDOs tend to be like major league pitchers; sometimes you must seek out a free agent for that role!
Clearly, you’ve seen many changes over the past 40 years, one being the birth of online lenders. How do traditional, relationship-based asset-based lenders compete successfully in this landscape?
We don’t compete with online lenders in our segment of the market. Having said that, competition in our space is at an all-time high. The good news is that relationship lending is not dead, and we have worked hard over four decades to cultivate and maintain relationships with our key partners with whom we do business. I would say that in most, if not all, the deals we do there is an advocate somewhere in the transaction who has done business with us in the past. Those individuals advocate for us because they have a high level of confidence that we will close what we propose and treat the customer fairly on an ongoing basis. To me, it is all about fairness.
After everyone sounding alarm bells about the next recession, the latest surveys indicate middle-market business owners are feeling good about the economy. Do you share this optimism?
I am optimistic about our ongoing success because an experienced asset-based lender does well in good times and bad for entirely different reasons. I see some signs that the economy is softening in certain sectors, but nothing that would signal a precipitous decline. We would welcome a downturn because that normally creates a target-rich environment and a reduction in competition. I see a target-rich environment because of softening performance and the increased need for monitoring that goes along with it. Reduced competition because the local and regional banks tighten up and the non-bank lenders who have ill-advised or cash flow structures tend to have problems. We had a field day in 2009 and 2010 when the entire middle market looked like one big ABL market.
What are the biggest challenges, in your view, that ABL lenders are facing today?
I think that you already touched on two of them, people and competition. Both of those are very challenging. Outside of that, keeping up with technology and satisfying the regulators are probably the other two facing the bank-owned lenders today. I don’t envy any bank or finance company trying to find a niche and start up a new ABL in the current environment. Having said that, there are a couple out there who have managed to gain a foothold in the market.
How did your time serving on the SFNet (formerly CFA) Management Committee and as chairman affect your career? Why should young professionals today volunteer their time with SFNet?
My first experience with the CFA was at GE. They sent me to a chapter meeting on the bankruptcy reform act of 1978. From that point on I rarely missed a chapter meeting. I found it to be a great way to broaden my technical knowledge and to meet not only peers but senior individuals in the industry. I found serving on the Executive Committee, Management Committee and finally chairman to be my way of giving back to the industry. To me it was a way to try and make the industry and the association better and stronger. I am very happy that I did that and would not trade that for any other experience in my professional career.
In March, Fifth Third Bancorp announced it had completed its acquisition of MB Financial, Inc. You are now leading the combined ABL groups. Can you tell us a bit about the group’s structure and short- and long-term goals?
I am very excited to be leading the combined ABL operations of Fifth Third and MB, now Fifth Third Business Capital. Not surprisingly there was little overlap in the two organizations. The two fit together perfectly and result in an organization that can fund a small ABL and lead a large syndicated transaction. In many ways this transaction gets us right back to where we were over 10 years ago at LaSalle Business Credit. The legacy Fifth Third team is expert in leading large syndicated deals and our legacy MB group has closed over 300 relationships in that $5-to-$30 million-dollar range. We called it plug and play. Unlike other transactions I have seen or been involved with, we barely missed a beat in our productivity throughout the transition.
How does the merger affect your customers?
The merger certainly gives us a broader and stronger product set to offer to our customers. It also allows us to grow; where in the past we might have had to find a co-lender to service larger customers, we can just continue to grow with them and not have to find a partner.
MB was more in the $5-to-$30 million deal range and Fifth Third starts at $30 million. So the two groups complement each other very well. It gives us the ability to hold larger transactions and service companies as they get bigger without having to find a partner.
Are there specific industries you’ll be concentrating on?
Regardless of the size of the company, certain industries lend themselves to what we do or they don’t. We’re fairly straightforward traditional ABL lenders, so we stick to the distributors and the manufacturers and we do some service companies but, generally speaking, we want to have assets. We don’t lend on a multiple of cash flow per se. Some lenders have migrated in that direction, but I don’t really consider that asset-based lending to get that far afield.
Everyone seems to be talking about tariffs. Is that something that’s keeping you up at night?
Tariffs seem to have affected consumer product companies quite a bit. Companies that are importing home goods or those types of things largely from China, they’re having to resource. The good news is I think they are all in the same boat so, unless there is an alternative product or the buyer just won’t buy at the higher price, they seem to have the time to resource from other countries. That’s really where we’ve seen the biggest impact, on consumer products and maybe on metals to some degree. I think the agricultural sector is getting hit pretty hard by it, but we don’t have a big concentration in Ag. We don’t have a lot of manufacturers that are selling to Caterpillar or big manufacturers like that.
As a general comment, it doesn’t seem like it’s impacted our portfolio very much at all. TSL