A young company with an innovative approach to meet an emerging market trend needs a partner to provide the credibility, capital and business-process expertise to realize its vision. This is the story of Advent International’s role in the rapid rise of one of the largest remittance businesses in the U.S.-to-Latin America corridor.
One key to high-growth business success is to identify an emerging, underserved market and then bring a unique approach to meet that burgeoning demand. In October 2000, Advent found a company that was doing just that.
The company was DolEx Dollar Express, a Texas-based business serving a growing market of predominantly Latino customers, who send money electronically to beneficiaries in Mexico and other Latin American countries. DolEx recognized that the market for cross-border money transfers was growing and that technology was making electronic remittances a more appealing option. The company also believed in an independent-store model, which ran counter to what the competition was doing, but provided enormous marketing and brand-building opportunities.
“The DolEx-Advent partnership demonstrates what is possible when a smart business concept meets focused, disciplined execution.”
Diego Serebrisky, Managing Director, Advent International
After acquiring a controlling interest in DolEx, we prepared the company for a period of accelerated growth. First, we worked with the management team to institutionalize controls and governance procedures and then set about aggressively expanding both the number of retail branches and products offered to the market.
The result was a 10-fold increase in the branch network in just a few years, positioning DolEx for a successful sale in 2003. Today, it stands as a testament to what is possible when Advent’s resources and a company’s own strong management talent are applied to a business endeavor.
DolEx was founded in 1997 when its owners recognized that the cross-border remittance market was both expanding and changing in fundamental ways. It was expanding through significant population growth of immigrant Latinos in the U.S. The market was changing through new technology that was making it easier and less expensive to handle large quantities of transfers electronically. Prior to the mid-1990s, the segment of the Latino population that did not have bank accounts relied largely on slow and risky transfer mechanisms such as mailing money orders or taking physical cash across the border.
"As promising as the business was, DolEx was having trouble growing. Navigating state licensing procedures and raising capital were becoming impediments to progress. Management recognized it needed the help of an institutional investor to bring the company to the next level.”
Diego Serebrisky, Managing Director, Advent International
DolEx also had a business model that was atypical in the industry. Most of its competitors offered their products through independent agents in separate businesses such as grocery stores. DolEx thought differently. It saw independent, company-owned stores as a tool for greater control of the relationship with customers, for more rapidly adjusting prices based on market conditions, and for providing a better and faster service experience. The store model also allowed increased operational leverage and a platform to test and develop new products and services in a controlled environment.
Further, DolEx had built an innovative technology infrastructure that enabled the company to monitor and modify prices at individual branch locations on an intraday basis, as well as maintain accurate and efficient compliance procedures.
“Yet, as promising as the business was, DolEx was having trouble growing,” said Diego Serebrisky, a managing director in Advent’s Mexico City office. “Navigating state licensing procedures and raising capital were becoming impediments to progress. Management recognized it needed the help of an institutional investor to bring the company to the next level.”
The senior partners at Advent in Mexico City knew the DolEx owners from another venture. After sixth months of due diligence and negotiations, a deal was struck giving Advent majority ownership in the company.
Corporate governance and controls
The strategy for DolEx was aggressive growth in both the number of locations and products offered. To do this successfully, the company would first need to strengthen its controls and governance structure. DolEx was still a young company, run informally by its founding investor group. It needed to become more managerially and financially sophisticated.
We immediately created a formal board of directors and executive committee to provide oversight and guidance to management as the period of rapid growth began. The board and executive committee would play an active role in all major business activities going forward.
Additionally, because DolEx collected a large amount of cash and transferred funds internationally, it had significant exposure to the risk of money laundering, which could threaten the entire enterprise. We brought in Kroll, the global accounting firm, to conduct a comprehensive financial assessment and set up structures of financial oversight.
Advent immediately created a formal board of directors and executive committee to provide oversight and guidance to management as the period of rapid growth began.
And while aggressive promotions and marketing campaigns would lead to rapid growth, increased sales didn’t automatically translate to healthy cash flow. Throughout our ownership, we kept management sharply focused on both EBITDA and cash management.
Finally, we opened up important channels to banking and investment institutions to provide DolEx with needed capital and lines of credit. Our expertise also helped the company navigate the complicated world of state regulatory licenses as it began to expand.
Market and product growth
With a proven model, a favorable market environment and first-rate IT infrastructure, Advent and DolEx next focused on growing the business. Branch growth was strategically focused in 15 U.S. states, where nearly 75% of the U.S. Latino population resided. In three years, the number of retail branches mushroomed from 50 to 550.
The retail locations opened up numerous opportunities for value-added services. Soon DolEx began offering currency checks, money orders, phone cards and electronic tickets for airlines to its growing base of loyal customers.
The lead time to open a branch was two to four weeks. The low upfront capital requirements and monthly fixed operating costs enabled a new DolEx location to achieve profitability in a short period. The branch locations were structured so that they could be closed quickly if they lost economic viability, with limited loss in equipment since most of it could be relocated to other locations. This streamlined process allowed DolEx to open more than 20 branches a month for an extended period, most notably in 2000 when 258 branches were added to the network.
In addition to increasing the number of retail locations, Advent helped focus the company on expanding its product offerings. Electronic remittances would remain the core business, but the owned and operated retail locations opened up numerous opportunities for value-added services. Soon DolEx began offering currency checks, money orders, phone cards and electronic tickets for airlines to its growing base of loyal customers.
One of the most successful service additions was the Amigo Latino card to facilitate quick and simple transactions for repeat customers. The cards automatically stored information to reduce transaction time, effort and error, which enhanced customer loyalty. The Amigo Latino card also helped those with literacy or communication problems, thereby tapping into another underserved market.
The results of these growth and operating initiatives were impressive. During Advent’s ownership, revenue increased from $46 million in 2000 to an estimated $72 million in 2003, while EBITDA surged more than fivefold.
Having achieved key elements of the company’s growth plan and looking to capitalze on its strong performance, Advent and other DolEx investors sought to monetize their investment. In August 2003, they sold the company to Global Payments Inc. (NYSE: GPN), a world leader in payment processing solutions, for approximately $190 million. For Global Payments, the DolEx purchase represented an entry into a new growth market for its core transaction services business.
Today, DolEx remains a successful, well-run company with over 700 branches serving millions of consumers each year. The branch model continues to provide a more personalized customer experience, and more than 80% of DolEx’s transactions are now made using the Amigo Latino cards.