FinTech Lender Uses Novel Risk Model to Challenge Aggregator Rollups

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

But regardless of the strategy, there’s a simple commonality and necessity underpinning it all: capital. It’s the lifeblood that gets new business off the ground, that sustains operations … and it’s the lifeblood of mergers and acquisitions too.

Deal-making and new business formation surged during the pandemic and during the years when interest rates were effectively at zero, the cost of funding was negligible and valuations were high. As the economy slows, as interest rates rise, as some firms struggle with inflation, opportunities arise for entrepreneurs who want to find the right, established businesses to buy.

But it can be challenging to fund small business acquisitions for the would-be buyers that have top lines of tens of thousands of dollars to as much as $1 million. The individuals seeking to find and finance target acquisitions might not qualify for bank financing. And more often than not, in uncertain macro climates, they do not want to risk their own, personal assets (such as loans or credit card debt) as they move through the purchase process.

Boopos CEO Juan Ignacio Garcia Braschi told Karen Webster in a recent conversation that online lending, coupled with flexible financing — and an online directory — can help simplify the acquisition process.

“We work with people that 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 become their own bosses … they’re doing this for the sake of self-employment.” In other cases, he said, these entrepreneurs may opt to build “small portfolios” of businesses, and in effect become small aggregators.

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

In terms of mechanics, the company’s platform qualifies the buyers and preapproved opportunities (submitted by brokers) for underwritten loans that cover as much as 80% of the purchase price, in automated fashion. Funding usually is done within a week.

Two Underwriting Models

Boopos, said Garcia Braschi, has two underwriting models, underpinned by data and the automated processes. One model, he said, is more appropriate for eCommerce, where Boopos examines traffic and positioning of a company that is operating on the Amazon marketplace (to name but one example). The other model focuses on subscription firms and recurring revenues, examining customer stickiness and other metrics. Boopos, he said, will examine the track record of the buyer — they are required to have owned and operated business before, preferably within the vertical they are targeting.

“One of the key parts of this business is making sure you’re partnering with the right people,” he said.

The Current Environment

Garcia Braschi said that business acquisition activity — including of SMBs —is cyclical. When there is a lot of liquidity in the system, of course, multiples expand, deal activity surges. The digestion period means that multiples go down.

But regardless of the environment, said Garcia Braschi, the economics of the company’s platform 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 fine — we’ll just lend smaller amounts per deal, and the M&A activity still happens.” Boopos charges about 15% on the loans, and Garcia Braschi noted that owners, if they are able to find cheaper sources of debt over time, can refinance at no additional cost.

“Many buyers use us a prefinancing tool,” he said, “as they feel they might get to SBA financing in a couple of years. We help them buy the businesses they want at the time that they want to buy them.”

To date, the company has underwritten more than 1,000 businesses, qualifying more than 500 owners for loans — and approved more than $280 million in funding. The general “ticket” sizes of the loans generally range from $100,000 to about $2.5 million, and the businesses acquired tend to average $1 million in sales.

Thus far the company has underwritten 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 that are most in favor — have shifted a bit since the company’s founding in 2020. Garcia Braschi noted that, perhaps not surprisingly, as the pandemic hit and lingered, eCommerce companies have been in focus. More recently, there’s been attraction on the part of buyers toward software-as-a-service (SaaS) firms, within the business-t-business (B2B) space, marketing agencies and even iOS apps.

In the current operating environment, SaaS firms hold particular appeal for their predictable, and recurring, revenue streams. Marketing firms, said Garcia Braschi, have customers that pay retainers every month. For Boopos, he said, valuing those relatively steady 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 firms that face operating pressures (and revenue headwinds) if Boopos is able to get comfortable with the margins, positioning and cost structure of that target company's model.

“We make sure that the business generates cash flows so that 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 of firms up for sale, and to bolster its underwriting models. The latest funding round comes after a $30 million seed round announced earlier this year.

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