Tradeshift, CapitalAid, and Supplier Financing: Christian Lanng Speaks Out on OB10 and More
The worlds of procurement and accounts payable (A/P) systems and supplier financing are set to collide. With the recent Tradeshift and CapitalAid announcement coming on the heels of the OB10/Tungsten acquisition and IPO, the physical and financial supply chain worlds from both the systems and banking perspectives have never been closer – or at least showing the early stages of material convergence.
Yesterday, Spend Matters had the chance to interview Tradeshift’s Christian Lanng on a range of topics, including the nuances between the funding approach and mechanisms of the CapitalAid partnership and platform. For Spend Matters’ initial coverage of this announcement, see: TradeShift Announces Deal with CapitalAid: “$3B” For Supplier Financing Through E-Invoicing Network.
Today we will continue the discussion of this transaction with the first of our three-part interview with Christian Lanng on this topic of supplier financing. Christian’s never one to mince words (remember his past statements on Ariba), but we must admit we were nevertheless surprised with the audacity of his remarks regarding Tradeshift’s offer to buy OB10 (see below).
Spend Matters: The announcement of this partnership with CapitalAid followed on the heels of the OB10/Tungsten news last week. Could you explain the timing?
Christian Lanng: I want to compliment OB10 and Tungsten on the most innovative acquisition structure the market has ever seen. It is an acquisition pending an IPO that will raise money to fund the acquisition.
I think it is bold to raise 160 million pounds for a company not making a consistent profit in 10 years and even bolder to build the whole proposed value of the deal on the financing component. Such a move would mean you have the network and suppliers already ready to go with financing. But this is a new component for OB10.
I send my kudos to the team for trying, but I feel that OB10 shareholders would be better off with Tradeshift. We would not be averse to buying OB10. I believe the upside for OB10’s investors with Tradeshift is that much better than selling shares in an unfunded IPO where the claimed value is based on a product for a market segment OB10 don’t have on their network today. We would probably be willing to offer something along the lines of a €30-40m for OB10 or even more if the value was right.
Spend Matters: OB10 and Tungsten will have a bank as part of the offering. But who is behind the money (the funding capital) with Tradeshift and CapitalAid? Is it a hedge fund or other sources? Is it a single backer, multiple funds, etc.?
Christian Lanng: The funding is coming from a combination of sources. The $3 billion in capital is committed. It is a global commitment of money. It includes private capital, pension funds, and hedge fund commitments as well. It’s a mix of sources. Now, that mix of sources also has different parts based on the data model (i.e., which providers will fund what lending requirements and at what rate) and how the individual agreement’s structured.
It is a new structure. We have not deployed the capital yet. It will be generally available to suppliers in the UK first within the next few months. The idea is to have a big bang in the UK with adoption and move on from there.
Spend Matters: How do you see the supplier financing funding dynamics playing out today?
Christian Lanng: There is a general problem with supply chain finance today, namely, that it is a very low-margin business for banks. One of the challenges of Ariba and OB10 in this market is that those that the suppliers they can fund are the largest suppliers who are on their network already, but they already have access to capital. Receivables factoring at these high interest rates is not interesting to them to large suppliers, and adoption traditionally have been lagging.
What is compounding the challenge is that the banks don’t see SCF as a revenue driver, but a means of selling other products. They are making money on currency, treasury services, FX, other areas, etc. SCF is negotiated as part of a much bigger deal structure. So you are competing with banks that see the product as a loss leader.
When OB10 says they want to get into the game of small-business financing, they are basically saying they will change their business model completely— from delivering value to large customers by charging suppliers to delivering value to suppliers— are the suppliers going to accept that reversal?
That is why the approach with Tradeshift and CapitalAid is different. We saw that it is possible to generate a high yield with the long tail of suppliers – small and medium-sized businesses.
We have more integrated long-tail suppliers in our system already. Five million SMBs already have access to Tradeshift in the US– and there are similar large numbers in the UK too. We have a believable brand with this segment, as we have been the champions for no supplier fees for a long time.
They are using the TS platform, not because they have been forced, but because they see real value there. That is the first step to enabling financing.
Stay tuned as this interview continues.
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