U.S. Growth Funds - Press Release

KBK Sells Factoring Business, looks for acquisitions
BOB FRANCIS 07.NOV.03
- Fort Worth Business Press

KBK Capital Corp. of Fort Worth has sold its factoring division to Marquette Financial for an undisclosed amount.

“The factoring company has grown form $8 million to almost $80 million during the last 10 years that we’ve owned it and we thought it was the right time to generate some liquidity for our shareholders,” said Robert McGee, chairman and CEO of KBK Capital. KBK Financial, its factoring business, was the first investment KBK Capital made when McGee, a former banker, began the firm about 10 years ago.

KBK Capital is a privately-held commercial finance, buyout and mezzanine group that works with and finances private and small public businesses. The company operates through KBK Financial and U.S. Growth Funds, two wholly-owned subsidiaries, and has combined capital resources exceeding $250 million. KBK Financial is one of the largest and oldest commercial factoring businesses in the southwestern U.S.

Factoring businesses allow smaller companies to take advances against their receivables before their maturity dates, giving the companies fast access to capital. The factoring business dates to when the United States was a colony of Great Britain. “Factors” would pay the mills in England for their accounts receivable for a discount and then come to the colonies to collect, said Bruce Jones, executive director of the Commercial Finance Association (CFA), a trade group in New York. “While the business is more complex and fine-tuned now, it is basically the same. It still provides bridge loans to companies while they await payment from their customers,” he said.

According to KBK Capital officials, the factoring business has been very strong the last two years and is expected to continue growing as the economy recovers. According to the CFA, factoring provided $96 billion in financing to firms last year, slightly up from the previous year. “The factoring industry has been undergoing some situations,” Jones said. For instance, GE Capital recently sold its $446 million worth of factoring assets to CIT Group for an undisclosed amount. “Basically GE Wasn’t doing anything with the business, so they sold it to someone who wants to grow it,” he said.

KBK Financial has provided more than $10 billion in financing to private and small publicly-held companies since its founding. It generated $500 million in factored committments in 2002.

The company and its 30 employees will remain in Fort Worth, with most employees retained under the new ownership. Another six employees will remain with KBK Capital. McGee says he believes Marquette will be able to grow the company nationwide. “Right now, we’ve grown the factoring business substantially, but we really couldn’t take it nationwide. Marquette can do that,’ McGee said. At least initially, KBK Financial will retain its name and consequently KBK Capital will change its name to U.S. Growth Funds, McGee said.

For KBK Capital, the sale continues a string of successful investments, according to McGee. “The sale of our factoring business continues our track record of our past four years; during this period, we successfully invested in, and exited 10 portfolio companies, with attractive cumulative returns. Our plan is to buy into small, fast-growing companies that are entrepreneurial and work with management to grow the business. We then scale the companies up to where they can utilize that capital and management we’ve provided,” McGee said.

KBK Capital continues to seek new investment opportunities, according to Jenna Benner, KBK Capital’s chief financial officer. “Our private equity and mezzanine finance staff is targeting to make 9-12 new investments in middle market businesses during the next 36 months,” she said.

Marquette, based in Minneapolis, is a $1-billion, privately-held financial services company owned by the Carl Pohlad family. It concentrates its portfolio in three areas: commercial finance, commercial banking and commercial mortgage banking.

“The acquisition of KBK’s factoring business fits with Marquette Financial Companies’ strategy to increase or presence in commercial finance,” said Bert Colianni, executive vice president and COO for Marquette Financial.

This press release contains forward-looking statements. The statements regarding expected results of U.S. Growth Funds Corporation are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional or national economic conditions, or changes in the conditions of the industries in which U.S. Growth Funds Corporation has made investments.