Greensill Capital was a ticking time bomb. He had lost the confidence that was crucial to his business model. He was struggling to find a listener. And German regulators were probing his relationship with metal tycoon Sanjeev Gupta.
Then the London-based financial group tried to raise $ 1 billion.
In October and November of last year, just months before its collapse, Greensill set out with a small army of top-notch advisers to court some of the world’s largest private investors.
Investment banks Citi and Credit Suisse, along with law firm Magic Circle Allen & Overy, guided Greensill in what he called a “pre-IPO” funding round, bringing in investors in London. and Australia to offer one last chance to invest before he leaves. Public.
The company, which counted former UK Prime Minister David Cameron as an adviser to its board, prepared documents including a 10-page presentation defending its “strong risk management” and “engaged advisers”.
Absent from this presentation were details of his credit losses, auditor problems or a BaFin investigation, according to people familiar with its contents; or the fact that its insurers were removing coverage – which “caused the real tightening” that ultimately brought the business down, according to Greensill’s lawyers in a court hearing this week.
The fundraising campaign showed a “big chutzpah” from Greensill, who specialized in the niche market of lend money to companies to pay their supplierssaid an investor who refused to fund the group. “They already knew the insurance had been withdrawn.”
In July, in emails that only became public this month, Japan-based insurer Tokio Marine said it would not extend or renew any Greensill policies and terminated an insurer during an investigation into its. relations with society. In the fall, Greensill made an increasingly desperate effort to find alternative coverage, which failed on March 1. This caused Credit Suisse to freeze $ 10 billion in company-related funds, depriving it of an important source of funding. Greensill filed for administration in the UK on Monday.
Despite the charm offensive, Greensill failed to attract new investors as it had with SoftBank and General Atlantic, the well-regarded fintech investor who first validated the company’s technological know-how. company with an investment of $ 250 million in 2018.
Potential investors “ran for the hills,” said a person close to the company, and the fundraising plan was abruptly scrapped. Eight private equity groups told the FT they decided not to invest after reviewing Greensill’s approach.
Greensill, Citi, Credit Suisse and A&O declined to comment.
For the founder Lex Greensill and his eponymous company, it was a failure that increased the pressure and which, in hindsight, now appears as a last ditch effort to save the company. For the rest of the world, it was a reminder of how private markets have allowed valuations to soar, while shifting more responsibility for assessing risk to buyers themselves.
Disclosure rules for private investments are “completely different” from strict requirements on public transactions, said Andrew Thornton QC, a mergers and acquisitions lawyer.
The principle behind private transactions is that “it’s up to the investor to ask the question,” he said. “This is why private investors are so careful about due diligence. However, he added, if companies mislead investors, they can potentially be prosecuted for misrepresenting.
The companies’ initial presentation materials, known as’ teasers’, are designed to showcase their best side and it is not clear whether the Greensill talks have progressed far enough that investors felt entitled to do so. be disclosed or misled by lack of information.
During the fundraising effort – where Greensill was looking to raise $ 600 million in equity and $ 400 million in debt, according to two people familiar with the matter – Greensill’s bankers appeared to “call absolutely everyone with money available, ”said an executive at a large private equity firm.
They told investors the company was raising funds for new acquisitions and to “accelerate growth,” even though this was contrary to previous statements by Lex Greensill about his company’s funding model.
“Our DNA is that everything we do has to be profitable from day one, and our investment in growing our business is to use those profits rather than using equity to allow us to grow,” he said. he stated in a video posted on the site. SoftBank Vision Fund website.
In fact, behind the scenes, the German BaFin was already indicating that the company may have to inject capital into its local banking subsidiary, to allay their growing concern over its level of exposure to an opaque network of companies linked to the industrial Gupta.
The document Greensill sent to potential investors describes him as a “market leader” in a “large and untapped market”. He also praised his “underwriting excellence” and his “proven high quality management team”.
Investors were offered video calls with Lex Greensill and the company’s CFO, Neil Garrod. Several investors have asked about the company’s credit losses, which the group has not disclosed, people familiar with the matter said.
Despite the optimistic outlook, by the time Greensill gave his argument, many of the company’s problems had already surfaced in the press.
The Financial Times had revealed that the group suffered a series of client failures in 2020, amid large companies collapse and accounting scandals, and chronicled its difficulties by appointing a new auditor. Bloomberg News, meanwhile, first reported in August that BaFin was scrutinizing Greensill Bank.
Potential investors were asked about his insurance, his credit losses and his auditor, but were not satisfied with the responses, people familiar with the matter said. Others told the FT they walked away due to a “lack of transparency” and difficulty getting the information they needed to complete due diligence on the deal.
One described the initial talks as “The Lex Show” in which Greensill spoke of his childhood as the son of a watermelon farmer in Australia, a story he often told.
“It’s a good pitch,” said the person. But the conversation was “very quick”.