The Secret Broker: As one door closes and whacks you on the arse, another one opens
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
When the closing door whacked Lex Greensill’s arse so hard that he ended up being thrown into the street and under an Indian magnate-driven bus, another one was being quietly opened, on the other side of the street.
In the world of finance, often as one scheme collapses, it can remind us that we live in a capitalistic world and not a commie red-tinted world.
There is nothing like a juggernaut road train pulling up outside of one building, full of the eye-gouging, fee-grabbing administrators and liquidators, just as a fresh powerpoint is presented in a building opposite, to new investors with the exact same model as the one that just collapsed.
But don’t worry, this time it will be different!
In the good old days, lawyers would wine and dine us, so they could try and muscle into the fees that our IPO pipeline would churn out.
In the bad old days, we would still be wined and dined by the same law firms but this time by another department that wanted the fees churned out when a company fell into administration.
We would regularly get entertained in a corporate box at Lord’s Cricket Ground in the good market days. But in the sour times… the quality of the wine would go up, and the invitations to corporate boxes would triple!
This was because when a corporate entity had fallen over the boys picking over the carcass would take over the ex-Chairmans box at Covent Garden or Chelsea Football Club. First rule in any liquidation – raid the corporate entertainment ledger and move it over to the pro bono fee account.
The latter situation created far more ludicrous fees for the lawyers, as good cases for them could go on for years. The collapse of Alan Bond’s Bell Group and the fight over money went on for almost 30 years, earning lawyers over $200m in fees.
The same is going to happen to Greensills, as the amount of money involved will create a fee feast bigger than Alan’s $200m. If Lex once controlled four private planes, imagine what goodies they will find in his Entertaining Budget account.
So what’s the new door being opened, with the exact same model as Greensills?
Well, it comes out of America and is a ‘new’ way of helping companies with their cash flow. The startup presenting the newly minted powerpoint presentation just raised U$50m.
Here is a picture of the founders:
Boy do they look happy.
Their company is called ‘Pipe’ as in ‘Pipe Dream’ and they are helping fund companies’ cash flows which they then securitise and sell on to other players to hold.
This is their financial spin. You know when you go to subscribe for something and you are offered a 20% discount if you pay a whole year’s subscription up front? Well, these guys will fund the 20% bit for the company selling the subscription.
They will give the company the year’s subscription up front, so that they can use it straight away and your subscription now goes to Pipe for 12 months. Pipe then offers this subscription package out on their offering platform, so that institutions can buy that stream of monthly payments.
For their effort, Pipe take a 1% fee on both sides of the transaction, get their capital back and move on to the next deal.
For a company like say, Canva, the Australian pin-up subscription company done good, instead of having another dilutive fund raise, they could forward sell their subscriptions.
Their last fund raise was for $60m on a valuation of $6bn and at that point, Canva had 30m subscribers. Currently they offer you an option to pay A$17.99 a month or A$164.99 for a year up front. That’s approximately a saving of 30% and it is this 30% difference that Pipe would fund.
So, for companies like Canva, it’s a no-brainer and it’s a way to tell the next VC fund that comes knocking on their door, to, er, stick it up their pipe.
For any listed companies, it’s also a no-brainer and you would think a booster for their share price.
If I had my old broking hat on today, I would be flying in the Pipe boys from the USA and entertaining them at a corporate box, paid for by the lawyers. I’d be wrapping up as many subscription companies with the Pipe Dream model as I could and taking my advisor fees in options in the listed company, as I know where their shares would be heading before any members of the public does.
A Pipe and Slipper deal for me and a win-win outwardly looking deal for the company. But I’ll be long gone before it becomes a Pipe and Slippery deal for all the holders…
Ah, the joys of capitalism.
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