Contract based financing

1. Financing of Managed Services contracts

NL-Fund focuses on the financing of so-called "managed services" contracts offered by Vendors to their customers "as-a-service". These managed services contracts cover a wide range of ICT services, such as ICT network infrastructure (fiber, WiFi), cloud data storage, workplace management, security, audio-visual equipment, digital signage, etc

Managed services contracts are characterized by:

  • dthe combination of hardware, software and services such as network management, maintenance, remote control, security management, uptime management, incident management, fix & repair, and other related services in one package;
  • the compensation is at an all-in monthly term (or per quarter), for a fixed duration of (on average) 36 to 72 months.

The supply of energy equipment (solar panels, turbines, central heating boilers, insulation, management, all in one package) is also eligible for managed services contracts.

The services of NL-Fund cover the financing of the contracts and risk management, but also the administration of the contract base, including collection, settlement of payments and interfacing services with the Vendors’ own administration

2. Trend in the market

In recent years, a clear trend has emerged in the broad ICT market in which companies and organizations increasingly prefer distributed spending, rather than a substantial 'upfront' investment in ICT. In other words, a transition from capex to opex. There a number of reasons for this strategic shift: clear budgeting, flexibility, convenience and above all: there is no significant financing requirement for the end user, which is a major advantage on his side

This model also offers advantages for the Vendor: he takes over the financing needs, as he builds a long-term relationship with his customer, and he can respond in a flexible way to changing needs at customer level.

However, there is one major disadvantage for the Vendor: his financial space is heavily burdened by the costs he has to incur to get the contract "up and running". The Vendor needs to finance not only the purchase of the equipment, but he also has to bear project costs, transition costs, implementation costs and other costs necessary before the contract can initiate. This requires a considerable working capital at the Vendor side, which is difficult to achieve with traditional financing sources. While demand is on the rise, this is a significant drag on growth.

3. The NL-Fund solution

NL-Fund makes an advance payment of the 'contracted cash flows' by taking over the contracts of the Vendors - for their term - in bundles. This is done in a classic fund structure, which is established as an SPV. If the fund is to be legal owner of the contracts, the services to the customer are still to be performed by the Vendor. The Vendor remains the face to the customer, while the services of the fund are only partially disclosed to the end users.

The advance payment works as follows: the fixed cash flow from managed services contracts is partially paid upfront, so that the Vendor immediately has the means to pay for the initial investment. The remainder is being paid out deferred, during the term of the contract, as the payments coming in from the end user .

Part of this formula is that the Vendor remains liable for the debtor risk, which is mitigated by a good selection 'at the gate' by the fund manager.

TA back-up service provider is also in place to guarantee the continuity of the service. For that reason, the solution that the Vendor offers must be highly standardized, therefore complete customization is not suitable.

If a contract were to change, for example in connection with a changed customer need, the Vendor can smoothly buy back and re-enter the contracts.

In this way NL-Fund offers a flexible formula, which has been specially developed for managed services contracts. A smart way to support business and to grow faster.

4. For whom?

NL-Fund focuses on medium-sized Vendors, who annually generate at least € 2 million in long-term MS contracts with a wide number of business customers. These Vendors are active in ICT markets such as IT infrastructure, workplace management, security, audio-visual services, but also in the broad market of energy equipment.

The Vendor has a good market position and preferably a large number of end customers. In principle, all managed services contracts are placed in the fund.

5. Partners

NL-Fund has been working as an independent fund manager of 2 funds as from 2014. NL-Fund works with high quality partners, financially strong lenders and a trusted party for payments, risk management and legal affairs.

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