January 2014 – Issue 1

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Wall Street Evaluates Merchant Cash Advance

Merchant cash advance companies are generating a lot of buzz with investment bankers, private equity firms, and venture capitalists. Are they just browsing?


The acquisition of RapidAdvance by private equity firm Rockbridge Growth Equity earlier this year turned the national spotlight onto the merchant cash advance industry.

The high valuation of the RapidAdvance deal particularly raised eyebrows, causing many industry observers to say that the splintered MCA industry may now be ripe for consolidation through mergers, acquisitions and a cascade of similar deals.

“The merchant cash advance space is an area of increasing focus, both for private equity and for bankers who are familiar with the sector,” said Jason Gurandiano, a managing director and head of global financial technology investment banking for Frankfurt, Germany-based Deutsche Bank.

But others warn that unless MCA companies find more predictable funding sources, further professionalize their processes, and invest more in technology and business fundamentals, that the RapidAdvance deal may be more of a one-off than a harbinger of things to come.

What’s in a deal

The sale of RapidAdvance was announced last quarter. And though the terms of the sale were not disclosed, the sale was reportedly based on an enterprise valuation of more than $100 million.

“Rapid is a sign that, in many ways, some very smart money is coming into the sector,” said Dave Cox, managing director in charge for New York-based investment banking advisory firm Evercore Partners.

Detroit-based Rockbridge Growth Equity LLC is headed by Dan Gilbert, best known as the owner of the Cleveland Cavaliers and chairman of Quicken Loans.

The eye-popping valuation, along with Gilbert’s prominent involvement, has sparked many to speculate that other high-dollar deals may be in the works for other leading MCA companies.

“Dan Gilbert’s track record with Quicken Loans speaks for itself,” Cox said. “When you see someone who is such an important innovator in other areas of lending, you have got to take note.”

There are several aspects to MCA firms that make them attractive as potential takeover targets.

The obvious first piece is the attractive margins built into the typical cash advance deal.

Bull Market of Alternative Business Lending?

But beyond those raw numbers, many of the best are also investing heavily into technology. Things like real-time underwriting data, and automated origination are setting the industry’s best players apart in ways that just weren’t possible a decade ago.

And perhaps the most tempting piece of the MCA puzzle is the gaping hole they are filling that is being left by the lending and banking industries.

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