The sale of Demica a few weeks back appeared to be purely a sale initiated by J.M. Huber to the investment bankers JRJ Group, TomsCapital and 76 West Holdings. Let’s face it. This could have been PrimeRevenue being taken out by a Hedge Fund run by George Soros with deep pockets. All of a sudden, these vendors would no longer need the banks to fund the assets they generate.
The investment bankers now have put one of the critical steps together to create a model to bypass banks and their expensive capital. Having a platform is one critical step, but there are more to build the ingredients necessary for successfully taking assets (and I mean receivables) and finding a way for the capital markets to fund.
There are multiple ingredients to getting this right.
- First, you need the Infrastructure that may be possible to generate assets for securitization.
- Second, you need the asset generation which involves a client that is prepared to let you generate those assets
- Than you need someone to fund those assets (and that is not so simple given investors may have different regulations, accounting treatment for buying these assets, risk v reward tradeoffs, etc.
- and finally you need the technology involved in securitization. That involves a way to manage the replenishment that is involved with short term receivables.
There are many different partners to make this work. Having a platform today (a network for example) does not generate assets. It could, but it needs all of the above.
I am sure the folks at JRJ and TomHill understand this. For any of these deals, the first question is whose money is it?
What will the banks do in reaction to this and potentially other acquisitions down the road? If they are using the Demica platform today for their supply chain finance program, they must make a decision to spend millions to unwind from it. Otherwise, my guess is they have a new potential competitor who will find a way to leverage their advantages in both equity and compliance to make some noise.
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