Greensill Capital was a ticking time bomb. It had lost the insurance that was crucial to its business model. It was struggling to find an auditor. And German regulators were probing its relationship with metals tycoon Sanjeev Gupta.
Then the London-based financial group tried to raise $1bn.
In October and November last year, only months before its collapse, Greensill set out with a small army of blue-chip 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, shepherded Greensill on what it called a “pre-IPO” funding round, tapping up investors in both London and Australia to offer one last chance to invest before it went public.
The company, which counted former UK prime minister David Cameron as an adviser to its board, prepared documents including a 10-page presentation championing its “strong risk management” and “engaged advisors”.
Absent from that presentation were details of its credit losses, auditor trouble or BaFin probe, according to people familiar with its contents; or the fact that its insurers were withdrawing coverage — which “caused the real crunch” that ultimately brought down the company, according to Greensill’s lawyers at a court hearing this week.
The fundraising drive showed “tremendous chutzpah” from Greensill, which specialised in the niche market for lending businesses money to pay their suppliers, one investor who declined to fund the group said. “They already knew the insurance had been pulled.”
In July, in emails that only became public this month, Japan-based insurer Tokio Marine had said it would not extend or renew any Greensill policies and had dismissed an underwriter during an investigation into his dealings with the firm. By the autumn, Greensill was making an increasingly desperate effort to find alternative coverage, which failed on March 1. That caused Credit Suisse to freeze $10bn of funds linked to the firm, depriving it of an important financing source. Greensill filed for administration in the UK on Tuesday.
Despite the charm offensive, Greensill was not as successful hooking in new investors as it had been with SoftBank and General Atlantic, the well-regarded fintech investor that first validated the company’s technology knowhow with a $250m investment in 2018.
Would-be investors “ran for the hills”, a person close to the company said, and the fundraising plan was abandoned abruptly. Eight private equity groups told the FT they had decided not to invest after considering Greensill’s approach.
Greensill, Citi, Credit Suisse and A&O declined to comment.
For founder Lex Greensill and his eponymous company, it was a failure that piled on further pressure and in hindsight now appears like a last-ditch effort to save the business. For the wider world, it was a reminder of how private markets have allowed valuations to skyrocket, while shifting more responsibility for assessing risks to the buyers themselves.
Disclosure rules for private investments are “completely different” from the stringent requirements on public transactions, said Andrew Thornton QC, a barrister specialising in mergers and acquisitions.
The principle underpinning private dealmaking is that “the onus is on the investor to ask the question”, he said. “It’s why private investors are so careful about due diligence.” However, he added, if companies mislead investors they can potentially be sued for misrepresentation.
Companies’ initial pitch documents, known as “teasers”, are designed to present their best side and it is not clear whether any of the Greensill talks progressed far enough for investors to have felt entitled to the disclosures or misled by the lack of information.
During the fundraising effort — where Greensill was seeking to raise $600m in equity and $400m in debt, according to two people familiar with the matter — Greensill’s bankers appeared to be “calling absolutely everybody with any spare cash”, said one executive at a large private equity firm.
They told investors the firm was raising funds for new acquisitions and to “accelerate growth”, even though this was antithetical to previous statements Lex Greensill had made about his company’s funding model.
“Our DNA is that everything that we do must be profitable from day one, and our investment in the growth of our business is about using those profits as opposed to using equity to enable us to grow,” he said in a video posted on the website of SoftBank’s Vision Fund.
In reality, behind the scenes, Germany’s BaFin was already indicating that the firm might have to inject capital into its local banking subsidiary, to assuage their growing alarm at its level of exposure to an opaque web of businesses connected to the industrialist Gupta.
The document Greensill sent to would-be investors described it as a “market leader” in a “large and untapped market”. It also touted its “underwriting excellence” and “proven high quality management team”.
Investors were offered video calls with Lex Greensill and the firm’s chief financial officer Neil Garrod. Several investors asked questions about the company’s credit losses, which the group did not disclose, people familiar with the matter said.
Despite the rosy outlook, by the time Greensill was giving his pitch, plenty of the company’s issues had already surfaced in the press.
The Financial Times had revealed that the group had suffered a raft of client defaults in 2020, amid high-profile corporate collapses and accounting scandals, and chronicled its difficulties in appointing a new auditor. Bloomberg News, meanwhile, had first reported in August that BaFin was scrutinising Greensill Bank.
Would-be investors asked about its insurance, credit losses and auditor but were not satisfied with the responses, people familiar with the matter said. Others told the FT they had walked away because of a “lack of transparency” and difficulty obtaining information they needed to carry out due diligence on the deal.
One described the initial talks as “the Lex show” in which Greensill spoke of growing up as the son of a watermelon farmer in Australia, a story he has told often.
“It’s a good pitch,” the person said. But the conversation was “very quick”.