Greensill painted a rosy picture as he searched for $ 1 billion before the collapse
Greensill Capital was a ticking time bomb. She had lost the confidence that was crucial to her business model. He was having trouble finding an auditor. 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 left with a small army of top-notch advisers to woo some of the world’s largest private investors.
Investment banks Citi and Credit Suisse, along with magic circle law firm Allen & Overy, guided Greensill through what he called a “pre-IPO” funding round, involving investors to London and Australia to offer one last chance to invest before his departure. Public.
The company, which included former British Prime Minister David Cameron as an adviser to its board, has prepared documents including a 10-page presentation defending its “strong risk management” and “committed advisers”.
In the absence of this presentation, details of its credit losses, auditor problems or the BaFin investigation, according to people familiar with its contents; or the fact that its insurers were withdrawing their coverage – which “caused the real crisis” that ultimately brought the company down, according to Greensill’s lawyers in a hearing this week.
The fundraiser showed “a huge chutzpah” from Greensill, who specialized in the niche market for lend money to companies to pay their supplierssaid an investor who refused to fund the group. “They already knew that the insurance had been withdrawn.”
In July, in emails that only became public this month, Japanese insurer Tokio Marine said it would not extend or renew any Greensill policies and fired an underwriter amid an investigation into his relationships. with society. In the fall, Greensill made an increasingly desperate effort to find alternative coverage, which failed on March 1. 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 Tuesday.
Despite the charm offensive, Greensill failed to attract new investors as it had with SoftBank and General Atlantic, the reputable 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 brought additional pressure and, in hindsight, now appears to be a last ditch effort to save the business. To the rest of the world, it was a reminder of how private markets allowed valuations to soar, while shifting more responsibility for assessing risk to buyers themselves.
The disclosure rules for private investments are “completely different” from the strict requirements on public transactions, said Andrew Thornton QC, a mergers and acquisitions lawyer.
The principle behind private agreements is that “the onus is on the investor to ask the question,” he said. “This is why private investors are so careful about due diligence.” However, he added, if companies deceive 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 any of Greensill’s talks have progressed enough that investors feel entitled to 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 seemed to “call absolutely everyone with spare cash, ”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 Lex Greensill had made 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 said in a video posted on SoftBank’s Vision Fund website.
In fact, behind the scenes, the German BaFin was already indicating that the firm 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 industrialist Gupta.
The document Greensill sent to potential investors described 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 was giving his speech, many of the company’s issues had already surfaced in the press.
The Financial Times had revealed that the group suffered a series of client failures in 2020, amid high-level business collapses 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 asked about his insurance, credit losses and auditor, but were not satisfied with the answers, people familiar with the matter said. Others told the FT they had pulled out due to a “lack of transparency” and difficulty getting the information they needed to do their 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 good ground,” the person said. But the conversation was “very quick”.