FinTech Lender uses a new risk model

Some build businesses, others buy them. And some build companies, sell them and buy other companies.

But whatever the strategy, there is a simple common feature and necessity that underlies it all: capital. It’s the lifeblood that gets new business off the ground, that sustains operations … and it’s also the lifeblood of mergers and acquisitions.

Dealmaking and the creation of new businesses increased during the pandemic, and during the years when interest rates were effectively zero, financing costs were negligible and valuations high. As the economy slows, as interest rates rise, as some businesses struggle with inflation, opportunities arise for entrepreneurs looking to find the right established businesses to buy.

But financing small business acquisitions can be challenging for potential buyers who have top lines of tens of thousands of dollars to as much as $1 million. Individuals seeking to find and finance target 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) as they move through the buying process.

Boopo CEO Juan Ignacio Garcia Braschi told Karen Webster in a recent conversation that online lending, combined with flexible financing—and an online catalog—can help simplify the procurement process.

“We’re working with people who want to buy maybe one, two, maybe three, up to five businesses,” he told Webster. “These are the buyers where the main motivation is to be their own boss … they’re doing this for the self-employed.” In other cases, he said, these entrepreneurs may choose to build “small portfolios” of businesses, effectively becoming small aggregators.

The firm, based in Miami, traces its origins to Garcia Braschi’s own time navigating the vagaries of the pandemic in Spain and Latin America, during a previous stint as CFO at tour company Cabify. These challenges fueled his own desires for self-employment. The aggregator and acquisition site beckoned.

In terms of mechanics, the company’s platform automatically qualifies buyers and pre-approved opportunities (submitted by brokers) for underwritten loans covering as much as 80% of the purchase price. Funding usually takes place within a week.

Two insurance models

Boopos, said Garcia Braschi, has two guarantee models, underpinned by data and the automated processes. A model, he said, is more appropriate for e-commerce, where Boopos examines the traffic and positioning of a company operating on the Amazon marketplace (to name one example). The second model focuses on subscription firms and recurring revenue, examining customer stickiness and other metrics. Boopos, he said, will investigate the track record of the buyer – they are required to have owned and operated a business before, preferably in the vertical they are targeting.

“One of the most important parts of 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, multiples of course expand, and deal activity increases. The digestion period means that multiples go down.

But regardless of the environment, Garcia Braschi said, the economics of the company’s platform remain intact. As he told Webster, “We’re happy to lend at a higher earnings multiple … but when you have lower multiples because there are fewer people buying businesses, that’s fine too — we’re just lending smaller amounts per deal, and the M&A activity is still happening.” Boopos charges around 15% on the loans, and Garcia Braschi noted that if owners are able to find cheaper sources of debt over time, they can refinance at no extra cost.

“A lot of buyers use us as a pre-financing tool,” he said, “as they feel they can get to SBA financing in a couple of years. We help them buy the businesses they want at the time they want to buy them.”

To date, the company has underwritten more than 1,000 businesses, qualified more than 500 owners for loans – and approved more than $280 million in financing. The general “ticket” sizes of the loans typically range from $100,000 to about $2.5 million, and the acquired businesses tend to sell for an average of $1 million.

So far, the company has made more than 100 acquisitions, and the average buyer on the platform has done an average of 1.5 deals, he told Webster.

The deals themselves — and the businesses most in favor — have changed a bit since the company was founded in 2020. Garcia Braschi noted that, perhaps unsurprisingly, as the pandemic hit and lasted, e-commerce companies have been in the spotlight. Recently, there has been a push from buyers toward software-as-a-service (SaaS) firms, business-to-business (B2B), marketing agencies, and even iOS apps.

In the current operating environment, SaaS firms are particularly appealing for their predictable and recurring revenue streams. Marketing firms, Garcia Braschi said, have clients who pay retainers every month. For Boopos, he said, it is relatively easy to model to value the relatively stable businesses – and the loan amounts that will be financed. The company’s data-rich approach also means Boopos is able to sign clients looking to buy firms facing operating pressures (and revenue headwinds) if Boopos is able to get comfortable with the margins, positioning and cost structure of the target company’s 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 scale the marketplace for companies looking for sale and to strengthen its underwriting models. The latest round of funding follows a $30 million seed round announced earlier this year.

Of the automated underwriting and platform model, he said: “We’re taking a fresh look at a [lending] business that has been around for centuries.”

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