Finance Book as Hidden Value Multiplier

"Until that point, people would go to a third-party financier, like Fisher & Paykel Finance or someone similar, to rent this equipment. I understood, though, from my previous experience at General Finance, and at Xerox where everything was done on finance, just how much profit there was in the finance game. We were keen to retain that profit ourselves, instead of passing it on to third parties. In starting our own finance book, we were able to increase the value of our receivables considerably. So, instead of putting a customer on a casual contract that paid $80 a month for a piece of equipment, as an example, we could put them on a three-year contract paying just $50 a month. It was a win for them, and the guaranteed term made that item worth $1,800 to us. Our asset had just become much, much more valuable. Such was the power of what someone had agreed to pay for it over time. It gave us leverage that we could borrow against. Not only that, but we also had thousands of newly acquired pieces of equipment we could do this with, and because we owned all of the equipment now, too, we could do this almost indefinitely. We grew that finance book to $100 million in receivables. This was the making of the Blue Star business, in many ways. It was the genius in the deal that no one else had thought of. The others who were bidding for the Telecom business against us had been thinking in basic and more linear terms. We were thinking in leveraged terms – about the ability we would have to turn the assets we were buying into something worth much more. Fundamentally, we were thinking bigger and doing things better."

"We knew that if we were going to make the investment in a bold move like that, we needed to have something bold and worth saying. ‘We’ll give you a free 20-inch television for every EFTPOS terminal you get’ – is what we settled on. And with our ode to AC/DC, it became our differentiation. It sounded like a gimmick, but it worked for us – and was appealing for those we were trying to attract the attention of. We could buy the televisions relatively cheaply, at least compared with what a three-year rental contract on the terminal would bring us. And the customers felt that they were winning too, since they got something for free in return for renting a piece of equipment they needed anyway, and at the same price they’d need to pay elsewhere to get the terminal without the television tacked on. It made us seem like the best deal around for those needing or wanting an EFTPOS machine. Sales multiplied."