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30417_ccr_guyobrien_mp3.mp3
Announcer, Michal Flock, and Guy O’Brien
Announcer:Broadcasting live from the Aria Resorts in Las Vegas for the DBA International Conference, it’s Capital Club Radio. Now, here’s your host, Michael Flock
Michael Flock:Good afternoon.Thank you for listening to Capital Club Radio here in Las Vegas. We are very honored and delighted today to have with us, as a guest, Guy O’Brien. Guy is the founder and CEO of Bull Bridge Capital, brokerage business in the subprime auto world. Prior to this, Guy was the face of Innovate Auto Finance, as VP of Sales and Marketing. Under his leadership there, he implemented strategies to increase market share, and to contemporize the brand of Innovate Auto Finance. Making Innovate one of the top recognized brands today in the subprime auto finance portfolio acquisition market.
Guy O’Brien:Correct.
Michael Flock:Guy thanks for coming all the way to Las Vegas, and participating in our show today, here. How did you get into the subprime market? Why is this your passion today?
Guy O’Brien:I have been in the subprime market for the past five,six years, and the opportunity in subprime as it relates to really just the segment of credit,continuing with the depth and breadth of the credit dynamic out there. There is just a tremendous amount of opportunity, a tremendous amount of volume, and for investors, just a tremendous amount of yield to participate if you are in acquisitions or if you are in indirect model. Just a lot scale.
Michael Flock:Its yield, it is, I guessfinancial returns, but you are in Sales and Marketing, so why would that get you excited? Are you not more interested in the revenue growth? The market share? Or, is it all of the above?
Guy O’Brien:All of the above. It is interesting how I came to Innovate. In 2011, I joined Innovate to be their face, to do just that, to grow their brand. Had a tremendous pedigree, and tremendous executives that started Innovate, the majority of their background was the founders, and some of the key personnel to launch AmeriCredit, which we all know too well. So, within that space in those heavy resumes, they were looking for somebody that had an ability to create a brand, and ability to penetrate the market. In a space inherently where subprime from an indirect model was very germane to their resumes, very consistent with their backgrounds.
And so, my background, as it relates to marketing branding, sales training, sales consulting. Although I am proud to say I was not exactly from the space, but there is so many consistent threads when you are talking about brand-initiatives, and brand-growth. And, getting out there, and finding out just how big was the market. Just how much opportunity was out there, specifically from a bulk purchasing, from a portfolio. Taking a look at the landscape. So, there was a really great opportunity for me to sink my teeth in, candeleeprah on a personal level.
My wife and I just had our first son, and I have been travelling prior to that for the last ten years for about 40 weeks a year as a speaker, and as a sales trainer, and as a consultant. With that, with my background in that there was a very consistent thread at the end of the day, and I certainly took it very serious with the gentleman that I sat across the table, and the founders of Innovate because of their background, to make sure I did a good job. But, when we started out in acquisitions, they were vetting that out; in terms of how big was the opportunity.
So, we looked at every opportunity, and tried every element that you could in a Sales and Marketing engine, as it relates to grass-root, hitting the streets, phone call campaigns, and identifying what is the best way to evolve the brand. And, you get an opportunity to see a lot of paper. In that space, what so interesting and what is so key, is you have to take a look at a lot of opportunity to make the very best decisions. And, your decisions are only predicated based upon how much depth and breadth you have in terms of what you sourced in your portfolio looks to say, “What do we have on the table?”
And, certainly, I know I have had many robust conversations over the years within my peer group, talking about, “How do you do that, and do that right? How do you price, and get the appropriate discount to effectively make the yields that you committed to your investors? Make the yields you committed to your board, and grow your business, and scale?”
Michael Flock:How did you build a brand like Innovate in a market that is so huge, and so populated by so many companies? I would think it would be easier said than done. How did you do it?
Guy O’Brien:Daunting.
Michael Flock:How did you measure the growth, and depth, and impact of the brand? How did you do that?
Guy O’Brien:One of the first things that you have to do, is taking a look at where the concentration, in any business, but we will keep it specific to bulk purchasing, that where was the concentration of the amount of Marketing and Sales activities? Where were they? Were they hit in the streets? Were they literally walking on to auto dealers? Lots? Was it through phone campaigns? What model were they using? Was it through a tremendous amount of inside sales generation? Or, was it through primarily sea level executive conversations? And, to answer your question, you have to do the basic grass-roots gorilla-marketing. You have to get out there, especially with that brand. When we launched it, Innovate was not a known brand.
Michael Flock:What is gorilla-marketing?
Guy O’Brien:Gorilla-marketing is just sweat equity. Getting out there, pressing flesh, and walking on to lots, asking for the business, and asking for the opportunities. And, taking a look at walking through and talking to auto dealers, and the very same thing we do today in Bull Bridge, understanding really what are the pain points, and what are the objectives specifically with Buy Here Pay Here dealers. Buy Here Pay Here dealers that have a related finance company, and that want to build a portfolio. Then, you take a look at that on a scale;it is just on a larger scale. When you go to a Buy Here Pay Here, or to an indirect finance company that is purchasing paper through point of sale.
And, above beyond that, obviously the largest indirect company Santander and CapOne, things of that nature. Effectively there is a consistent thread in their objective, which is, how do you buy, and how do you get in the front, and acquire the very best consumers from a credit quality, and from a structure? What is the appropriate collateral structure, and what is the appropriate deal structure? Then, when you take a look at that, to answer your earlier question about what do you do to launch that brand? Well, what we had to do very uniquely, was what I call going into “thin air.” Effectively, we had two things: we had balance sheet, and we had a servicing platform.
And, because of the balance sheet, there is an opportunity to deploy capital in a way that makes sense. Well, taking a look at that, who needs capital, looking at indirect finance companies? Certainly, when you talked about a populated space, when you talked about a competitive space, that competition can be defined as Buy Here Pay Here dealers, that can be defined as small to medium sized regional or national finance companies that are originating subprime auto loans indirect. And, taking a look at they have the same pain points, which is this, either they are capital constrained, or they are servicing platform constraint. Either they have the ability to originate more if they had the capital to do so, or they can’t originate more because they didn’t have a servicing capacity to meet those needs. What we did, was to get out there, and identify finance companies.
Which was an element, what I call “thin air,” is they get out of in front of finance companies, and buy paper that was not aged. Buy paper, as it relates to their ability, effectively my objective there was to outsource the sales channel. If I can get in front of indirect finance companies, that have the ability to originate loans, but don’t have the capital to do so, well we had that. So, what we would do is, use effectively and outsource their brand to originate those loans, and effectively buying behind the scenes. Very much like it is done in the mortgage bit space. Very much, it is like it is done on any forward flow, or flow agreement space.
That is what we did, in that respect, you asked me, “How do you distinguish yourself amongst the competitors?” There wasn’t a lot of folks that was going into that vertical or that segment of business with respect to finance companies or a little larger capitalized originators. Traditionally, bulk acquisitions companies work with a very grass-root, a very traditional Buy Here Pay Here structure. Where the portfolio age, the portfolio collateral, and the portfolio consumer underlying credit is pretty consistent, and with the background of AmeriCredit, I knew there was sophistication, a desire to get into a much more sophisticated business model.
Sophistication from the underlying underwriting, to underwrite the deals, to have the ability to look at deals that have been already vetted out, make certain the deals were contract compliant and underwrote.
Michael Flock:Correct me if I misunderstood, I think you said that there wasn’t that much competition with Innovate and the model that you had. Can you elaborate on that? Because from an outsider’s perspective Buy Here Pay Here, is so darn competitive. So, did deeper, let’s find a niche then. Did you create a niche in this competitive market? And, how exactly did you do that?
Guy O’Brien:So, let’s define that: Buy Here Pay Here, it is absolutely competitive. That is a very large segment of business.
Michael Flock:It is ruthless. It is brutal!
Guy O’Brien:It is! And, no two dealers are the same. No philosophical business model from dealer to dealer is the same from a commercial standpoint or to, how the paper is actually originated under what terms. So, let me just say this, what I mean by distinguished, there is certainly a model. When I think of the models, I think of a CAC type model, where it is a hybrid type model. CAC, Credit Acceptance. Great business model as it relates to how they are advances, and how they structure their deals. Then, when you get into a traditional bulk purchasing, there is just a heavy amount of different elements on how they value a portfolio.
And, what I’m saying there is, it’s not so much in the competition, there is heavy competition, and looking at Buy Here Pay Here portfolio one after the other. But, where there wasn’t a lot of competition, taking a look at portfolios, was in the indirect finance originator space. And, taking a look, and getting in specifically in front of those finance companies that had a desire to originate. And again, were either confined by capital, or confined by their servicing platform.
Michael Flock:You said your focus as VP of Sales and Marketing, was building the brand. What did building the brand have anything to do then with your success in this space? In this somewhat of a niche? What would brand had to do with that?
Guy O’Brien:I think the best way to describe that is the space is very boutique in nature. It’s very niche. It is, even though, the numbers are large, but the buyers are – there is certainly a depth and breadth, but the buyers are very boutique in nature. So, how we built the brand was, in a word, I said, “If we can be influencers. If we could be educators in the space, with respect to, of educating the originators of the deal, of what makes a good deal.Because the overall question that Buy Here Pay Here dealers or anybody that sells receivables has is this, “What do you look at when you make a valuation of a portfolio? What does a buyer inherently look at?”
What we want to do is answer that clarion call with an education platform, so we participated. We work within the trade shows across the country. With NIADA, NABD, work with Leedom, worked with the State Association. And, we did our very best to get out there and host educational platform, talking about just that, “How can you originate a deal that a buyer wants to buy? What does that look like? What does a buyer look for commercially?”
Michael Flock:So, you were teaching? Mentoring, in a way.
Guy O’Brien:Getting out there, on a one-by-one basis –
Michael Flock:Let me stop you for a second. This is interesting because you said your background – one of your passions is training, and development, and teaching. So, you brought that to your strategy of building a brand with Innovate through these educational platforms.
Guy O’Brien:I did.
Michael Flock:We love connecting the dots here on Capital Club Radio, and I think we’re now digging into the personality of the leader, who is Guy O’Brien, and it’s exciting to see how these things are coming together.
Guy O’Brien:I think with your earlier question, it is a daunting task to get into any space, but specifically the subprime space, as competitive as it is, to be relevant, and to be an industry leader. And, over the past five years and taking a look at, I purchased probably over $300 million on behalf on Innovate, and being involved in those deals. I have to tell you, to buy that much; you have to look at a lot of paper. I probably sourced on average between $60 and $70 million a month to make the very best decision that we could.
Michael Flock:How many deals did you have to reject to get to that?
Guy O’Brien:That is a very good question. That is a hard thing to do, is reject and say, “Let me give you the opportunity to take a look.”
Michael Flock:Particularly if you are a sales guy.
Guy O’Brien:For sure.
Michael Flock:You like to say, “Yes!”
Guy O’Brien:Yeah, we like to say, “Yes.” But, when you are taking a look at – it is interesting, in bulk purchasing, when you deploy the capital, you are already in a net negative in your deployment of capital. So, you don’t know if you bought the very best answer. You bought a piece of gold or you are pregnant with an alien. You just don’t know.
Michael Flock:That is a new one.
Guy O’Brien:With that said, you want to make that, from a commercial standpoint, and that is when I think – to answer your question, “How would we distinguish process? Operation?” We wanted to make certain that, and that is when I do now at Bull Bridge, is connecting the buyers and sellers. Above and beyond price and purchasing. There is so much more. There is so much. I believe you are known for the phrase – it is so much more than a transaction, and that is so true. When you take a look at beyond the funding, that is when the work begins. So, what I really focused on, in that education format was, is this portfolio, is it transferrable?
Can you transition it into another servicing platform? And, really spending time, really working from understanding a dealer’s inventory plan, or a finance company’s origination platform.
Michael Flock:So, you are looking beyond the deal.
Guy O’Brien:Beyond the deal.
Michael Flock:The first one.
Guy O’Brien:Absolutely. Take a look at what is their inventory plan, to what is their marketing plan. Everything in between to understand is it collectible because I always believe any buyer, and now representing many buyers, if a buyer can collect it, well then, I consider it uncollectable. There has to be consistency in those disciplines.
Michael Flock:You make it sound so easy and so much fun. But, Guy, what were some of pitfalls, and challenges that you found along this journey to building Innovate? What were they, and how did you cope with them?
Guy O’Brien:There was certainly a lot of late night, and a lot of hitting-your-head-on-the-table, right? No success of anything comes –
Michael Flock:Was it because the deals you were looking at, you didn’t win them? Or, was it building relationships? Was it competition? What was it?
Guy O’Brien:All of the above, but what I would say, is that you hope that common sense prevails. And, taking a look at the deal structure based upon whether it was the seller’s objective, and understanding truly what his assets, and what his portfolio is worth. And, then taking a look on the buyer’s side of really what the risk were worth. And, I will tell you, today, there is still a delta, there’s a tremendous misunderstanding, and misalignment, as it relates to what a buyer, as I said earlier, is looking for, and what a seller is saying, “What do I have here?”
Typically, a buyer’s market price of what he determines his assets or his receivables is worth, is based upon a previous sale or perhaps a peer or a friend that sold a portfolio in any given point. And, so really, understanding of why your portfolio valuation is what it is, and really, in any deal structure, there are three temples. There is the credit, there is the collateral, and there is the deal structure. And, up and down the scale, when you take a look at that. That all starts – and, what is interesting about the market, when you talk about trying times, well, that starts, when you are talking about being buyer.