Greensill/Apollo: acquisition would have been the sincerest flattery

Greensill Capital may soon cease to exist. Perversely, its basic business model may have been validated in the process. Greensill’s funding base has dried up in a flash, forcing it into haphazard administration. Amid the frenzy, Apollo Global Management, the alternative assets firm, was poised to scoop up pieces of the business for a song.

That rescue deal may now itself be upended. Taulia, a technology provider to Greensill, is steering the company’s clients to other institutions.

Companies large and small need constant, steady working capital finance. When these include such blue-chips as Vodafone and Airbus, established lenders understandably want in on the game Australian financier Lex Greensill started.

Greensill clients needed a way to manage cash outflows better. The firm’s product paid off the invoices these clients owed to their suppliers at a small discount. In exchange, the clients would repay Greensill later at an agreed price that allowed the firm to make a spread for providing its service.

The margins are thin on such deals. To cover overheads and make a profit, Greensill required third-party financing of its own for its assembly line of deals. Credit Suisse investment funds were a big source of Greensill’s liquidity. A layer of insurance that protected investors from customer default was the string that tied it all together.

Such contraptions can unravel with just a slight tug. Questions mounted about Greensill clients such as Sanjeev Gupta’s GFG Alliance. Relationships with SoftBank and its portfolio companies also raised concerns. As insurers and regulators started asking questions, Credit Suisse funding — Greensill’s lifeblood — dried up.

Apollo emerged as a natural vulture buyer given its multitude of corporate lending businesses. A $60m bid looked set to clinch a purchase of Greensill IP and technology. Now it has emerged that the guts of the Greensill lending business was a software platform from Taulia. This has referred Greensill borrowers to JPMorgan and its ilk. That has stalled the Apollo deal.

Blow-ups like Greensill have the socially beneficial effect of exposing the complex value chains that underlie financial services. It may be found later that Greensill played fast and loose with the help of permissive backers to build an empire once valued at $4bn. Still, if the likes of Apollo and JPMorgan are stepping in, deep down at the core of this company was something worth having.

The Lex team is interested in hearing more from readers. Do you think Greensill’s business model has legitimate characteristics worth copying? Please give us your analysis in the comments section below