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Office equipment for lease

Zsombor Baltay left a safe and well-paid banker job at Citibank to build up a leasing firm from scratch. He is not planning however to keep the firm and when he gets older, to pass it on to one of his three children to manage.

He is not only hoping that if the firm succeeds, one large market player might find it an attractive acquisition target. He already has a contract in place ensuring that if he succeeds, and if the company gains a promising market share and works profitably, a stock exchange listed German leasing firm will buy it. The German firm is also happy to have Baltay build up and nurture their future Hungarian affiliate. This reduces the high risk faced by all leasing firms when buying a portfolio of unknown clients.

The German firm has a somewhat unique profile of its own. Small and medium-sized enterprises can lease from them their whole IT equipment for their offices for a fixed monthly fee. 

"When someone's firm needs new computers and office equipment, he contacts a hardware shop to provide him the laptops, servers, printers, telephones, phone centers, all the IT and office equipment he needs. If the hardware store is a partner of Grenkeleasing, the seller might suggest that the client should lease it. All together, from one company, for a fixed monthly fee. This way a company that needs to renew its IT and telecom systems will not face expenses of several million forints up front. It can lease it for monthly installments. This way the client can keep its creditworthiness, and can also renew office equipment regularly during the leasing period, paying the same fee. The seller will make sure that the used equipment will be sold and replaced by new ones. It will be especially handy for smaller companies, which are going to face a serious shortage of bank loans in the forthcoming months, probably years," Baltay explained. "They can use an office equipment system worth 1 million forints by paying 30,000 forints a month," he added. The process is also much simpler and faster than a bank loan. Checking the creditworthiness of the customers is typically done in less than 10 minutes, and with Grenkeleasing's free software, dealers can submit leasing requests online 24 hours a day.

The leasing firm has contact with the sellers of the IT hardware and office equipment, and reaches its clients through these retailers. This business model is well known for example in the car leasing business, but Grenkeleasing is now applying it to hardware for small and medium sized companies.

"We were given the whole business model and product portfolio of Grenkeleasing, a German leasing company quoted on the Frankfurt Stock Exchange and present in 20 European countries," Baltay said.

Grenkeleasing is expanding worldwide, using a unique business model for minimizing their risk of expansion. "Acquiring a leasing company, especially in a foreign country is the fastest way of growing, but it is highly risky. The buyer has very limited information on the clients of the acquired company – whether they are able and willing to pay in time, and how many of them fail to pay on time," Baltay noted. In many cases the due diligence of a leasing firm costs more than building up an equivalent leasing portfolio. The compatibility of the IT systems of the acquired company and the buyer is also a complicated issue. When setting up a "green field" leasing firm in a foreign country, the quality of the experts one can hire is a major risk factor.

It reduces risk for Grenkeleasing when someone starts up a leasing company that already uses the IT system of Grenkeleasing, the future acquirer, and examines the creditworthiness of clients according to the same rules as the future parent company would. The future acquisition target also receives relatively low-cost financing from the parent company to finance its leasing business. A start-up firm on its own could only receive financing from banks at much higher costs than Grenkeleasing. The German company purchased EUR 433.8 million worth of leasing assets in the first nine months of 2008, 15.9% more than in the same period of the previous year, and has been operating for 30 years. It also helps to provide low-cost refinancing; amid the global downward economic cycle, Grenkeleasing's credit rating was reviewed and left unchanged in recent weeks by Standard & Poor's at BBB+ for long-term and A-2 for short-term loans. "Its outlook is stable due to prudently managed wholesale funding, business cycle resilient asset quality and strong capitalization," the credit rating agency stated.

Grenkeleasing can also recommend to its local business partner a financial investor that has already been successful in financing two similar startups in Poland and in the United Kingdom that were purchased by Grenkeleasing in 2008. At the moment, the financial investor has stakes in Norwegian, Hungarian, Romanian, Spanish, Portuguese, Slovakian and Finnish companies which - if they succeed - will be acquired by Grenkeleasing.

Grenkeleasing uses the entrepreneurial spirit and risk taking of the young, agile experts it contracts to set a new firm up. The entrepreneurs have their own stake in the new company together with a financial investor. Grenkeleasing has an option to buy the firm in the next four to six years, in exchange for providing the know-how and the refinancing of the leasing contracts from the beginning. This is a good opportunity for the entrepreneurs and the financial investor, because they have a guaranteed buyer for their firm at a fair price if their newly set up company succeeds and obtains the expected market share and profitability. Meanwhile Grenkeleasing can avoid the usual pitfalls of an acquisition and have motivated experts build them the new leasing company.

Baltay had already gained experienced in the field of financing small and medium-sized enterprises himself. Before accepting the challenge of setting up a new firm for Grenkeleasing, he worked as a leasing expert at Citibank's Budapest affiliate. "An international headhunter company approached me with an opportunity to take the offer of Grenkeleasing as an independent entrepreneur," he said. "I was aware that as a father of three I am taking some risk by starting up my own enterprise, but at age 32 I thought that this was an opportunity to do something on my own and stand out from the average," he said. In Hungary I have to build the strategy, do the marketing, the sales, the HR and do all the functions the firm has. It also has to be said that Hungary is not a business-friendly environment. It is often hard to explain to German colleagues at Grenkeleasing all the 'difficult to comprehend' instances of red tape in Hungary," he added.

In Baltay's life, it is not the first time he made a brave decision and started doing something entirely different from what he had been doing before. He originally studied environmental sciences at the Gödöllő University of Agriculture. As an environment protection engineer he planned to become manager of a national park. But right after graduating he started to work for the international non-governmental environment protection organization United Nations Environmental Program (UNEP). "While I set up the Hungarian national strategy and action plan of the organization, I started to feel that my work will end up in a desk drawer. But I am a person who likes to do things that bring real results, and where one can achieve a goal," he said. "I also had children by then, and making money to support the family became the most important thing. That was the time when I went to work to Citibank, and while working I graduated in economics as well."

Despite working for success in another field, nature and environmental issues are still important in Baltay's life. He spends his free time horse riding and bird watching. He wishes that at some stage of his life, he could still serve the cause of environment protection.