Using Acquisitions To Build Value
TL;DR Summary
- New Firepower: With up to $300M in potential capital, we now have the ability to pursue more accretive acquisition targets that generate $1M to $5M in EBITDA.
- Active Pipeline: We are currently evaluating over $10M in potential acquired EBITDA, including larger agencies and media properties.
- Strategic Shift: We are no longer treating every acquisition as having the same goal. We are splitting targets into two distinct buckets: Cash flow Engines (to fund the company) and Growth Opportunities (to grow value per share).
- The Goal: Moving from “small and lumpy” to “large and predictable” to drive consistent profitability and shareholder value.
The Evolution of the Model
In our previous update, we introduced the rationale behind pairing digital assets with operating profits. The goal was simple: to build a structure that doesn’t just hold crypto, but actively grows the amount we have.
When you have cryptocurrency as a large part of your balance sheet, people might ask – why would I buy ONFO stock when I can just buy the cryptocurrency directly? Or when I could just buy an ETF?
The answer is because our goal is not to give you exposure to digital assets, but to increase intrinsic value per share over time. We do this by generating cashflow and reinvesting it to grow our balance sheet, grow operating cashflow, and increase digital asset ownership per share over time. It’s an active capital allocation strategy.
This article outlines one lever that powers that structure: Acquisitions.
The main purpose of this article is to show how we’re thinking about acquisitions in light of our digital asset strategy, and how that might have changed from previously.
Acquisitions have historically been the primary driver of our growth strategy. However, the type of business we buy and how we integrate it is changing.
Previously, we tried to fit every acquisition into a single operating model. We were trying to buy our way to profitability, and every acquisition needed to dividend cash regularly up to the parent company. This was not always the best use or cashflow for the individual business, nor was it conducive to growth.
Now, with a better cash balance, and the benefit of hindsight, we can buy the right businesses at the right size and put them in the right bucket. We can also fund their growth.
While not every acquisition immediately increases cashflow or reported balance sheet value, investing in growth expands future cashflows and optionality, which increases intrinsic value per share over time.
What We Learned From Our Previous Acquisitions
Since our 2022 IPO, we acquired a mix of agencies, media properties, ecommerce, and educational brands. These businesses helped us 10x our revenue and provided invaluable learnings.
While many of these were strong businesses, they taught us that not all EBITDA is created equal. Agencies and creator-led businesses often need to reinvest heavily into growth. Their cash flow can be inconsisten. When we treated them as businesses that needed to fund the parent company and fund growth and expansion, it created a mismatch between capital expectations and operational reality.
In the space that we operate in, a lot of businesses have great opportunity to be scaled through additional funding, or constant reinvestment of cash flow, or forming part of a rollup.
We’re talking about small, founder-led businesses that exist in fragmented industries (SEO, eCommerce, Marketing) and are often either under funded, under managed, or both.
What we want to do now, is build an acquisition model that fits the underlying business and the opportunities they have, rather than a one-size-fits-all approach.
The Lesson: different businesses create value in different ways. Our acquisition strategy now reflects this reality.
The Impact of our $300M facility
The new financing facility materially changes our position in the market. Our deal flow has dramatically increased in size and frequency since the announcement.
- Trust is higher: Sellers know we should have the funds to close.
- Deals are larger: We are seeing businesses above $2M in annual EBITDA that were previously out of reach.
- Quality is better: We are seeing more established leadership teams, less customer concentration, and more recurring revenue.
Even though our $300M facility is drawn down over time based on market conditions, the signal is clear: we have the mechanism to deploy massive capital, and founders are taking notice.
A Look Inside Our Current Pipeline To give you a concrete example of this shift, we are currently evaluating a diverse range of opportunities, including:
- A ~$1M EBITDA home services agency.
- A ~$2.5M EBITDA SEO agency.
- A ~$1M EBITDA data business.
- A ~$4.5M EBITDA digital asset news media company.
Note: These are early-stage reviews. We may not pursue all of them, but the sheer scale of the deal flow is a massive step up from six months ago.
What We Plan To Acquire Next
The “aha” moment we had over the past few months was that we should have different types of portfolio companies. Some can simply be there to throw off cash and fund our operations and digital asset purchases. Others are there for growing, rolling up, or flipping. The end goal is always the same, grow value per share.
What’s different is that as mentioned, we previously wanted every business to immediately fund operations and help us reach profitability.
As such, our buying criteria are now split into two distinct categories to match our new operating structure.
1. The Cash flow Base (Stability)
Goal: Acquire recurring, low-churn businesses that provide steady dividends to the parent company.
Target Profile:
- Recurring revenue, stable cash flowing companies. These might not have exciting growth prospects, but instead could have exciting cash flow prospects.
- Minimal reinvestment needs.
- Predictable monthly distributions.
Change from before: We are avoiding “lumpy” businesses for this bucket. If a business requires a liquidity backstop or can’t reliably dividend cash up to the parent company, it does not belong here. Depending on its growth profile, it might belong in the second group.
Our near-term goal is to acquire 1-2 of these businesses such that we are profitable, have a good cash flow base and can then explore the more exciting, value-driving opportunities available to us.
As an important side-note: We can still reach profitability without one of these acquisitions, and that is our aim and trajectory. What we’re outlining here is our approach to evaluating a business for what it can provide the company.
2. Growth Assets (Upside)
Goal: Growth. We aren’t looking for a monthly paycheck from these businesses. We are looking for them to double or triple in size. We let them keep their profits to fuel that expansion.
Target Profile:
- B2B services, e-commerce, and specific content or education niches.
- High ROI on reinvested capital.
Change from before: We previously passed on great investments because they couldn’t produce immediate cash flow for us. Now, we can acquire high-growth assets and help them grow, agnostic of near-term distributions or how well the deal pencils.
How We Help Acquired Companies
All this acquisition strategy sounds good, but people will only sell to us if we can give them a big payout, or we can promise them more upside.
We always try to optimize for somebody staying on post-acquisition, but that is not always possible. At the end of the day, most people sell because they want to move on.
However, there are two main ways people can get more upside by staying on.
1.) We can offer them enough capital to grow, so that they’ll end up with a smaller piece of a bigger pie, and more overall value.
2.) By selling for ONFO stock rather than all cash, they could/should see upside via the long term appreciation of the stock value.
Selling for stock also provides diversification, since they’d be trading in one business for multiple.
We spent a long time resisting issuing stock as part of an acquisition, but ultimately we have come to believe it is accretive for shareholders if done right.
The 12-Month Outlook
If we execute well, Onfolio will look very different in a year.
We expect to use this capital to reach a scale where our operating yield exceeds our corporate costs, pushing us into consistent profitability.
More importantly, we expect to cross the threshold where we become a net accumulator of digital assets.
We are starting with a foundation of cash flow, layering on growth assets to build equity value, and using our new capacity to fill the vault.
We have spent the last two years building the engine. Now, we are adding the fuel.
If you want to understand the compounding math behind serial acquisition and why the multiple paid matters so much, I put together a free guide on the math of serial acquisition.
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