Strategy now is to invest in front office solutions
06/06/2022
Even after spending R$420 million on the purchase of NewCon in December and R$79.5 million on Lote45 in January, Sinqia continues to seek new acquisition opportunities to expand the range of software services it offers to financial firms. The focus now, however, is on repositioning the business toward front-office solutions, directly linked to the user interface.
“We want to move out of the kitchen and go to the restaurant window,” said Luciano Camargo, co-founder of Sinqia, who will step down as chief operating officer and take over as chairman. “We will focus more on services such as onboarding, digital signature and digital billing, which are directly related to the financial firm’s relationship with the customer.”
According to the company’s executives, there is still R$200 million in cash for new acquisitions, which will probably be made in the second half of the year. The first half, according to CEO Bernardo Gomes, was the moment to consolidate recent acquisitions, integrating new operations and focusing on increasing revenues.
“This first semester was very much about digesting the acquisitions we made, about understanding how the market looks. We have cash to make another round [of acquisitions] in the second half and continue at this pace. If the moment calls for it, we may also consider making an acquisition in the future,” he added.
Mr. Camargo points out that Sinqia is currently in talks with 200 companies that may potentially be bought. “When we see market trends, we speed up or slow down the conversation with this or that company. It is not a guarantee that it will always work, but it has worked so far.”
To make this strategic repositioning towards front office, the company hired Ricardo Pacheco, a former executive at Itaú, who intends to bring the experience of those who were on the other side of the counter to help Sinqia understand the main needs of banks in a much more competitive environment and in which offering a good digital experience has become a basic necessity for the sustainability of the business.
“We are still scratching the surface, taking advantage of opportunities within the verticals we already work in. The next step is to integrate those solutions. Now it is about generating more value than each company separately,” he said.
Sinqia currently has four main verticals of service: banking, consórcio (buyer’s club), funds and pension plans. Some of its best-known solutions are related to enabling operations, automation of operational processes, accounting controls and interconnection with settlement institutions.
Mr. Gomes comments that there are three main reasons that lead them to make an acquisition. The first is to enter segments in which Sinqia does not yet operate. The second is to gain market share in segments in which it already operates. And the third is to seek companies that offer solutions capable of “horizontalizing” the business that the company already has, integrating the different existing solutions.
“If I take the pipeline of companies we are in contact with, 30% are new segments, 30% mean gaining market share in the segments we already have, and 40% are horizontal opportunities,” he said, revealing that the next acquisition has greater chances of being in this third group.
Besides the integration of solutions, one concern of the executives is to keep their attention focused on fashionable technologies to avoid being left behind in the future. Mr. Pacheco, for example, says he has experience with technologies such as artificial intelligence and blockchain, which are on Sinqia’s radar to expand its portfolio of solutions. In the case of artificial intelligence, the first move in that direction was made by buying Simply in March 2021.
“It does facial recognition and onboarding to ensure that people signing up are who they say they are, keeping all profile data so to reduce risk of fraud. All of this today is already done with artificial intelligence. I hope that in the future we can help the client not only with a report about what has already happened, but also about what is going to happen,” he said.
Regarding blockchain, on the other hand, the company does not have specific advanced initiatives yet, but the executives emphasize that they are monitoring startups working with the technology to prospect opportunities. Sinqia has a Corporate Venture Capital (CVC) program called Torq, in which it looks for startups with business models that complement its products to invest in.
In the first quarter, Sinqia reported net revenue of R$138.9 million, up 103.5% year over year. It was a record number for the company, which means R$555.4 million in annualized values. The adjusted EBITDA advanced 191.7% to R$36.2 million. Net income was R$9.7 million, a 12.4 times expansion in the annual comparison.
Mr. Gomes recalled that in 2013 the company, formerly called Senior Solution, held an IPO with revenues of R$40 million, which seemed very low for a company that wanted to be traded on B3. “Today we have almost R$600 million in annualized revenue with EBITDA of R$144.9 million,” he said.
For the next two years, the cofounder and CEO predicts that the company could double in size. “What we are talking about is to be capable of doubling again in two years in terms of revenue, just as we did in the past, when we increased threefold our size from 2019 to 2021.” Mr. Camargo believes that the 10% market share that Sinqia has today guarantees a “giant” potential for expansion from now on.
Sinqia’s average compound annual growth since 2015 has been around 30% per year.
Source: Valor International