selling exotic payment streams

Let's say I am a company that wants to sell my future semi-predictable revenue streams to a third party because I have a very strong preference for receiving cash upfront. Are there banks that broker these kind of deals? Are there funds that would buy these revenue streams? If so, which banks do this? (In many ways this is somewhat similar to selling equity in the business, but there's a number of reasons why I think this is qualitatively different and you might sometimes prefer to do one over the other.)

Hedge Fund Interview Course

  • 814 questions across 165 hedge funds. Crowdsourced from over 500,000 members.
  • 11 Detailed Sample Pitches and 10+ hours of video.
  • Trusted by over 1,000 aspiring hedge fund professionals just like you.

Comments (11)

  • Associate 3 in PE - LBOs
Mar 12, 2021 - 12:49pm

Definitely players in the royalty financing space - both on the PE side (ie. music royalties, pharma royalties) as well as public cos (see Altius Minerals).  Usually pretty sector specific given the different dynamics that drive the revenue streams.

Pipe seems interesting - would assume much higher cost of capital given the risk profile...

  • Trader in HF - RelVal
Mar 13, 2021 - 11:01pm

Any bank that specializes in your asset class (e.g. mining, oil and gas) will be comfortable selling royalties. The more unpredictable/volatile your stream is, the steeper the discount. 

The discount vs NPV (e.g. PV20) is effectively the return to the investor, so if the asset is complex the discount will likely start at 15% and run higher. On a NPV basis, this can be material for a long-dated stream. Someone else is taking risk off your hands, and they will need to be compensated for it. 

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Mar 14, 2021 - 12:40pm

in this case these are healthcare related subscriptions. these are also unusual because the asset isn't really a "royalty" but more of a risky subscription cash flow stream. should i contact a healthcare boutique? does it need to be a bulge bracket you think? should it be a bank that focuses on structured products? what are the names of banks that would be relevant?  

Start Discussion

Total Avg Compensation

April 2021 Hedge Fund

  • Vice President (18) $520
  • Director/MD (10) $359
  • NA (4) $325
  • Portfolio Manager (7) $297
  • Manager (4) $282
  • 3rd+ Year Associate (18) $269
  • 2nd Year Associate (26) $251
  • Engineer/Quant (49) $233
  • 1st Year Associate (63) $188
  • Analysts (181) $168
  • Intern/Summer Associate (15) $125
  • Junior Trader (5) $102
  • Intern/Summer Analyst (203) $82