Pat Allin: Contractors should use supply chain financing

by ALEXIS CHASTAIN | February 15, 2017

At the end of 2016, Pat Allin, former CEO and co-founder of Textura, joined us on our Venture series to discuss the changing environment for tech companies in the AEC, his time at Textura, and his thoughts on the Oracle acquisition. We ended our conversation talking about what he's doing now — acting chairman for North America, USA at Greensill Capital, a London-based company that provides supply chain financing (SCF) solutions.

Allin first started working with Greensill Capital while leading Textura. A client of the SCF company had told Lex Greensill, principal and founder of Greensill Capital, that he needed to look into what Textura was doing in the construction industry. After several pre-meetings, Greensill and Allin met. They began talking about how Textura was using it’s Trusted Platform Module (TPM) technology, and what Greensill did with supply chain funding. “It wasn’t anymore than about 45 minutes before we realized, with what he was doing and what Textura was doing, we had a real solution for the market place,” said Allin. That solution became Textura’s Early Payment Program (EPP).

In our follow-up with Allin, we got to take a deeper look into how Greensill Capital’s SCF solutions can be applied to construction, why using a non-bank institution for funding can benefit companies — particularly those with small- to medium-sized operations — and what’s the future for this new type of supply chain funding.

In the construction industry, who should be on the supply chain financing system? In other words: who would go to Greensill Capital?

So the way we’ve implemented EPP to this point is we work with a general contractor who’s implemented a TPM on their projects. What that means from a SCF point-of-view is that the subcontractor is using TPM to generate their invoices, capturing general contractor’s approval and, in fact, Textura does the payment and lien waiver exchange on those projects that are on systems, so we actually arrange a program for a general contractor and go through a credit review of that contractor and once that’s all in place, we then have a piece of functionality that Textura will show a subcontractor as their invoicing that they can get paid within a couple days of invoice approval. There is a fee associated with that, and all they have to do (if that’s what they want) is to click through a couple of boxes, and Greensill will facilitate the movement of money to a subcontractor at maturity. So it’s really the credit-worthiness of the general contractor that really makes this program available to a subcontractor.

There is also a scenario when a general contractor submits their payment application to an owner, Greensill can supply early funding to the general contractor, as well. So they can get paid almost immediately versus waiting for the owner to make payment. We’ve also started to do project finance for the general contractor or an owner. So you know, in a scenario where, for whatever sets of reasons, the owner might be looking for very long extended payment terms or some financing to get a project up and going, Greensill has and does consider providing funding in those kinds of situations.

Does Greensill carry out this program in other industries?

Absolutely. Greensill works in virtually every industry, but we’ve got really strong programs in telecommunications, air transportation, oil & gas, construction, energy, [and] we deal a lot with the corporate world. It’s really a blue chip list of clients that we work with.

“A loan to a medium-size or smaller company uses a lot more capital than a loan to an investment-grade company, so banks are actually disincented to provide lending to smaller companies.”

Why would someone go to Greensill Capital for a SCF solution versus a bank?

Post-global financial crisis, regulators decided they simply didn’t want to have banks get into financial trouble again, so they asked them to strengthen their capital base, which is capital relative to their exposure. A loan to a medium-size or smaller company uses a lot more capital than a loan to an investment-grade company, so banks are actually disincentivized to provide lending to smaller companies. And that's just the way it is. I don’t see that changing in the short term. And you know banks, when they look at a corporate, they typically sell finance. They have credit limits as to how much they’re willing to expose their balance sheet to a particular corporate. What Greensill does is goes out and leverages a broad base of investors in the capital markets, and they don’t tend to have the same credit limits.

How do you use capital markets for funding?

These programs are set up using legal vehicles, normally using a trustee, so when an investor invests money, they actually invest in a trust that is specifically focused on a particular client, like a general contractor or a corporate. So they’re investing in that contractor/corporate. Right now, most of the trusts are managed through Citibank, so they’re not giving Greensill the money, they’re investing in a trust that then turns around and makes these payments through Greensill’s technology to the subcontractor community.

Where do you see the market for SCF going in the future?

Oh, I think this is going to be a normal part of the business world. What you’re really doing is disconnecting payments from the normal invoicing cycle. Payment can be made much, much earlier, and if you’re a small-, medium-sized business, knowing you’re going to get paid 2 - 3 days of invoice approval versus 60 - 90 days later, that’s a really big deal. Particularly in the construction world, where timing of payment is really uncertain. Businesses will be able to have more certainty of cash flow and better able to invest and be stronger companies. We'll have less businesses going out of business. So it’s really a very healthy thing for the economy, which is why the US government, UK government, Canada, Australia, and others have really supported the corporate world having these supply chain finance programs.

DURING YOUR TIME AT TEXTURA, YOU MADE A LOT OF CONNECTIONS AND COULD'VE GONE ANYWHERE YOU WANTED — what made you so passionate about Greensill?

Because I think, in this whole supply chain finance space — which, by the way, I think is really good for the economy, I think they’re important programs — I believe that Greensill is the most creative. There’s 150 people, it’s the largest group of people focused on supply chain and balance sheet funding. The banking world, which is perhaps Greensill’s competitors, is highly competitive, and becoming more of what I call utilities — you know, not quite able to craft the same kind of unique and creative solution that Greensill’s able to. It, also, revolves around Lex Greensill, and he and I get along with each other. And, I’m at a stage in my career where I get to do the things that I enjoy.