Repay Holdings (RPAY), a fast-growing provider of integrated payment processing and technology solutions for loan repayment, mortgage servicing and B2B vertical markets, recently announced the acquisition of Payix for consideration of $115 million. dollars (including $95 million at closing and $20 million in potential price supplements). I view Payix as another positive acquisition for Repay as it expands its existing automotive footprint and is also very complementary to longer term growth prospects. With Repay also positioned to generate substantial cash flow with adjusted EBITDA margins of around 40% going forward, the current multiple of 14x EV/EBITDA looks very attractive.
A Closer Look at the Payix Agreement
Repay has disclosed a definitive agreement to acquire Payix for up to $115 million in cash, including $95 million due at closing and up to $20 million payable through an earnout depending of Payix’s performance for fiscal year 2022. For context, Payix operates an omnichannel payment technology platform primarily serving the loan repayment vertical. Its main added value is its integration with LMS (“loan management systems”) and DMS (“car dealership management systems”) to expand borrowers’ payment options. Key products include white label mobile apps, online borrower portal, interactive voice response system, SMS payment and agent-assisted payments, among others in its borrower software platform. According to the latest information in the accompanying press release, Payix is guided to generate more than $15 million in revenue in fiscal year 2022, with both gross and adjusted revenue. EBITDA margins of 65% and 40%, respectively. Indeed, this implies a purchase multiple of 15x the current pro forma EBITDA, which is favorable compared to the organic growth projection of 40% for the Payix activity.
Strong strategic rationale
One of the key positives of the Payix acquisition is its clear strategic fit with Repay’s core loan repayment business, as well as its value-added payments and technology capabilities, which will support collections efforts through integrations into existing systems. As a result, Payix adds value to both lender and borrower in a transaction, with its strong FY2022 product pipeline validating the use case. In addition, Payix also brings dealer management system relationships that Repay does not have and, under the Repay banner, is expected to continue to grow and drive even higher penetration. It’s also worth noting that Payix brings over 300,000 underlying borrowers to the Repay stable, which is significant. Overall, the company is on track to generate more than 50% of its revenue from loan repayment processing in the coming year, more than half of which will likely come from the booming category. car loans.
In addition to the automotive market, Payix also extends Repay’s loan repayment exposure to loan servicing, personal loans and BNPL (“buy now, pay later”). The latter is critical – BNPL has grown significantly in popularity in recent years, and as Payix already has an established BNPL system, the acquisition should accelerate Repay’s entry into the space. There are obvious synergies here, as Repay’s platform can help with more complex transactions. As such, I view the strategic alignment as very favorable, and even if the acquisition slightly increases subprime exposure, Repay’s experience with the due diligence process should dampen much of the headwinds.
Another Earnings Accretive Acquisition
Given that the transaction was financed by both cash on hand and Repay’s turnover capacity, the company is expected to achieve an increased net leverage ratio of 3.6x (vs. pro forma EBITDA) post-closing. ‘operation. With Repay also increasing its revolver capacity to $185 million (from $125 million previously), however, it will be provided with $215 million in liquidity for future mergers and acquisitions. Given strong guided cash flow generation for the year as well (and assuming no further acquisitions from here), the end-2022 forecast for net leverage Dec. 3.0x pro forma EBITDA seems within reach.
Going forward, it will be essential to keep the M&A machine running – Repay’s acquisitions have significantly expanded the company’s TAM (“Total Addressable Market”), allowing the company to enter new growth markets such than B2B payments. So far, Repay has expanded its TAM to $5.3 trillion (significantly above the previous $535 billion) by adding B2B AP/AR ($3.4 trillion), auto loans ($600 billion) dollars) and mortgages ($500 billion), among others. It is also encouraging to see that these acquisitions have been accretive – in the same vein, Payix is poised to become accretive to growth and bottom line with added scale and cost synergy benefits. likely to further increase margins over time. As Payix was also in direct competition with Repay, the improved industry backdrop post-deal could also lead to a further uptick in EPS growth.
Overall, Repay’s latest acquisition signals its continued appetite for M&A despite a rich valuation backdrop, with an accretive effect on organic growth and margins likely to boost the earnings growth trajectory. Essentially, the company continues to succeed in its efforts to expand its addressable market opportunities in the fast-growing electronic payments space, and this strategy is showing strong results given the accelerating organic growth outlook over the course of the year. 2022/2023 financial year. Coupled with a flexible balance sheet, which should support further M&A and TAM expansion options, the shares are trading at a compelling valuation of c. 14x EV/EBITDA, keeping me optimistic.