Woodland Hills-based Great American Group, which specializes in asset disposition, valuations and appraisals, and has conducted liquidation sales for retailers such as Circuit City and Mervyns, has launched a retail financing division. The subsidiary, GA Capital, will originate junior secured loans to retailers in need of growth capital, working capital and turnaround financing. It is targeting loans that are between $10 million and $100 million and secured by collateral such as inventory, real estate and intellectual property. “There has been a contraction in retail lending over the last 18 months, which created a void in the market,” said Daniel Platt, president and portfolio manager of GA Capital, who works out of New York. “The goal is to create liquidity.” GA Capital is looking to work with brick and mortar-type jewelry, department, apparel and other retail stores nationwide, rather than retail vendors. Prior to joining Great American, Platt was co-head of a private equity firm focused on the consumer/retail sector, worked with an asset-based lender that catered to the retail sector, and worked in the buying division of a large national department store. He said the subsidiary builds upon Great American’s expertise. “Great American has more comfort with asset values and therefore will be able to effectively originate transactions,” he said, adding outside investors are the ones providing financing. The retail sector is certainly feeling the brunt of the recession. In Los Angeles County alone, retailers have struggled with reduced consumer spending tied to job losses. And the region experienced five consecutive quarters of negative net absorption of retail space, according to Marcus & Millichap Real Estate Investment Services. “There’s definitely an opportunity in the retail space right now, with CIT having their issues and access to capital remaining tight,” said Andy Gumaer, CEO of Great American. “GA Capital is a natural tangent from our existing business divisions.” Gordon Brothers Group, one of Great American’s competitors, also has an affiliate that provides debt financing to private and public middle-market companies in a variety of industry and product categories. GB Merchant Partners targets loans ranging in size from $10 million to $50 million. Debt financings are typically structured as junior secured loans, “Tranche B” loans or enterprise value loans. The company also touts its focus on asset and enterprise values as a factor that enables it to “bring a unique perspective to a variety of financing situations and extend beyond the levels that traditional lenders can support.” GA Capital is Great American’s latest business venture since Alternative Asset Management Acquisition Corp., a special purpose acquisition company (SPAC), acquired the company in July 2009 for $175 million. SPACs are also known as “shell” or “blank-check” companies. They have no operations but go public with the intention of merging with or acquiring a company with the proceeds of its initial public offering. The move allowed Great American to go public without the expense of doing its own IPO. Gumaer said, in addition to launching GA Capital, the company continues to pursue the liquidation side of the business. It’s doing smaller liquidations right now, but business may pick up in Q4 2009 and Q1 2010, because that’s when many banks decide whether to pull the plug on flailing retailers. And, Great American has a home auction company that’s going after foreclosed properties. “It has only been three months since the acquisition and it’s going to take some time to realize the value of the impact of going public,” said Gumaer. “But it has significantly raised our profile on a national scale and we’re certainly hoping it’s going to put us in a position to grow. That’s why we did the transaction in the first place.”
