RE: THG FINCO PLC6 Sep 2024 11:54
An existing company might set up a FinCo PLC for several strategic reasons, especially if the company operates in sectors where access to financial services is important for growth and efficiency. Here are a few reasons:
1. Access to Capital Markets
Setting up a FinCo PLC allows the company to raise capital more easily by issuing shares to the public or institutions. This is especially useful if the company plans to expand its operations, invest in new ventures, or fund acquisitions.
2. Ring-Fencing of Financial Operations
If a company already has diversified operations, it might set up a FinCo PLC to separate its financial services from other core business activities (e.g., a manufacturing firm setting up a financial subsidiary). This limits risk exposure and keeps the financial and non-financial operations independent, protecting the rest of the business from financial liabilities.
3. Tax Efficiency
A FinCo PLC can be structured in ways that offer tax benefits. Some jurisdictions have favorable tax rules for financial entities, and creating a dedicated financial arm might help the parent company optimize its tax obligations.
4. Regulatory Advantages
Different regulatory frameworks apply to financial companies, particularly around lending, credit, and investment. A FinCo PLC allows the company to comply with financial regulations more efficiently while taking advantage of specific financial sector regulations or incentives.
5. Focus on Core Competencies
A non-financial business might want to set up a FinCo PLC to specialize in providing financial services to its clients or customers. For example, a car manufacturer could create a FinCo to offer financing options for buyers, improving sales and customer satisfaction without diluting focus from its core operations.
6. Diversification and Risk Management
By establishing a financial company, the parent organization can diversify its income streams. If the core business is cyclical or vulnerable to market downturns, financial services can provide a steady source of revenue and hedge against risks in its primary sector.
7. Customer Financing and Credit Solutions
Many companies, particularly those that sell high-value goods like machinery or vehicles, establish FinCo PLCs to offer financing solutions to their customers. This makes purchases more accessible, driving sales and customer loyalty.
8. Expansion into Financial Services
If the company identifies financial services as a growth opportunity, it might establish a FinCo to expand its business portfolio. Companies in retail or technology might see financial services (like digital payments, insurance, or investment products) as a natural extension of their existing offerings.