FinTech lender uses new risk model
Some people start businesses, others buy them. And some people start businesses, sell them, and buy other businesses.
But whatever the strategy, there is one simple commonality and necessity that underpins it all: capital. It’s the cornerstone that gets new business started, sustains operations…and it’s also the cornerstone of mergers and acquisitions.
Transactions and the creation of new companies have exploded during the pandemic and during the years when interest rates were effectively at zero, the cost of financing was negligible and valuations were high. As the economy slows, interest rates rise, some businesses struggle with inflation, opportunities arise for entrepreneurs who want to find the right, well-established businesses to buy.
But small business acquisition financing can be difficult for potential buyers who have revenues in the tens of thousands to $1 million. Individuals seeking to source and finance targeted acquisitions may not qualify for bank financing. And more often than not, in uncertain macro climates, they don’t want to risk their own personal assets (such as loans or credit card debt) in the buying process.
boopos CEO Juan Ignacio Garcia Braschi told Karen Webster in a recent conversation that online lending, combined with flexible financing — and an online directory — can help simplify the acquisition process.
“We work with people who want to buy maybe one, two, maybe three, up to five companies,” he told Webster. “These are the buyers whose primary motivation is to become their own bosses…they do it for the sake of self-employment.” In other cases, he said, these entrepreneurs may choose to build “small portfolios” of companies and in effect become small aggregators.
The Miami-based company traces its genesis to when Garcia Braschi navigated the vagaries of the pandemic in Spain and Latin America, during a previous stint as chief financial officer of ride-hailing company Cabify. These challenges fueled his own desires for self-employment. The aggregator and acquisition space beckoned.
In terms of mechanics, the company’s platform qualifies buyers and pre-approved opportunities (submitted by brokers) for underwritten loans covering up to 80% of the purchase price, in an automated fashion. Funding is usually done within a week.
Two subscription models
Boopos, Garcia Braschi said, has two subscription models, backed by data and automated processes. One model, he said, is more appropriate for e-commerce, where Boopos looks at the traffic and positioning of a business that operates in the Amazon marketplace (to name just one example). The other model focuses on subscription businesses and recurring revenue, looking at customer loyalty and other metrics. Boopos, he said, will look at the buyer’s background — they must have owned and operated a business before, preferably in the vertical they’re targeting.
“One of the key things about this business is making sure you’re partnering with the right people,” he said.
The current environment
Garcia Braschi said business acquisition activity – including SMEs – is cyclical. When there is a lot of liquidity in the system, of course, the multiples increase, the transaction activity increases. The digestion period means that the multiples decrease.
But regardless of the environment, Garcia Braschi said, the company’s platform economics remain intact. As he told Webster, “We’re happy to lend at a higher profit multiple…but when you have lower multiples because there are fewer people acquiring businesses, that’s also well – we just lend smaller amounts per transaction, and M&A activity is still coming in. Boopos charges around 15% on loans, and Garcia Braschi noted that owners, if they’re able to find cheaper sources of debt over time, can refinance at no additional cost.
“A lot of buyers use us as a pre-finance tool,” he said, “because they think they could get SBA financing in a few years. We help them buy the businesses they want when they want them.” want to buy them.”
To date, the company has underwritten more than 1,000 businesses, qualified more than 500 homeowners for loans, and approved more than $280 million in financing. The general loan “note” size typically ranges from $100,000 to around $2.5 million, and acquired businesses tend to average $1 million in sales.
So far, the company has underwritten more than 100 acquisitions, and the average buyer on the platform has completed an average of 1.5 transactions, he told Webster.
The deals themselves — and the most favorable companies — have changed quite a bit since the company was founded in 2020. Garcia Braschi noted that, perhaps unsurprisingly, as the pandemic hit and lingered, companies in e-commerce were at the center of concerns. More recently, there has been a pull from buyers for software-as-a-service (SaaS) companies, in the business-to-business (B2B) space, marketing agencies, and even iOS apps.
In today’s operating environment, SaaS companies are particularly attractive for their predictable and recurring revenue streams. Marketing companies, Garcia Braschi said, have customers who pay installments every month. For Boopos, he said, the valuation of these relatively stable businesses — and the loan amounts that will be funded — is relatively simple to model. The company’s data-rich approach also means that Boopos is able to underwrite clients who want to buy businesses facing operating pressures (and revenue headwinds) if Boopos is able to familiar with the margins, positioning and cost structure of the target business model.
“We make sure the business generates cash flow so they can pay us,” he said.
The company recently closed a $58 million Series A funding round and will use the proceeds to expand the market for businesses for sale and to strengthen its underwriting models. The latest funding round comes after a $30 million seed round announced earlier this year.
About the automated underwriting and platform model, he said, “We are giving a fresh look at a [lending] a company that has been around for centuries.
We are always looking for partnership opportunities with innovators and disruptors.