Brookfield Asset Management Inc. BAM-A-T has picked up a stake in Hopper Inc. in a secondary financing that establishes the Montreal online travel company as one of Canada’s most valuable private technology enterprises.
Brookfield’s growth equity arm joined Toronto’s Stack Capital Group and U.S.-based Drive Capital in buying US$35-million worth of equity from employees in a deal that values the company at US$5-billion, Hopper chief executive officer Fred Lalonde said in an interview.
While Hopper did not itself issue equity in the deal – which typically prompts investors to write up the value of their stakes – one of its existing backers, Boston venture-capital company Accomplice, whose partner Jeff Fagnan sits on its board, also bought into the deal.
Fellow director Damien Steel, managing partner at OMERS Ventures, Hopper’s largest shareholder with a 10-per-cent to 15-per-cent stake, said in an interview that the buyers “are absolutely paying fair market value” just six months after Hopper announced its most-recent formal financing at a US$3.5-billion valuation. Mr. Steel said OMERS would only determine at the end of the quarter if it would mark up the value of its stake.
Mr. Lalonde went as far as to say US$5-billion “is low” because the shares sold were common, not higher-ranked preferred stock that Hopper would issue in a financing. “The actual valuation if we did a pref round is probably much higher,” he said. “They’re getting a deal.”
While it used to be rare for Canadian companies to reach US$1-billion valuations – “unicorn” status – such entities proliferated last year as valuations for maturing, fast-growing domestic startups skyrocketed. Hopper is now at least the fourth Canadian company since the start of 2021 to reach the much more rare $5-billion valuation level, joining 1Password, Wealthsimple Technologies Inc. and PointClickCare Technologies Inc.
Valuations of public tech companies have collapsed this year, which some observers predict will spread to private markets. But Mr. Lalonde said Hopper has not been affected because, while many tech vendors that benefited from the pandemic have seen their valuations shredded, his company stands to benefit from its end.
He’s predicting a “travel supercycle” as restrictions lift and pent-up consumers travel with a vengeance. “Ask any hotel or airline CEO – people have an immense amount of saved-up money and everyone is trying to travel once restrictions come down,” he said.
Hopper is well positioned as it offers airline, hotel, vehicle and now short-term home stay bookings. The company’s mobile platform, which targets millennials, was the most downloaded travel app in the U.S. last year.
It also leverages access to vast data sets obtained from travel booking systems such as Sabre, applying AI to offer ancillary financial-services products to travellers. Travellers can pay extra to freeze a flight price for several days, buy the right to cancel for any reason for full credit, rebook a missed connection for no extra fee or change a ticket to a different day without forfeiting the full ticket value.
After figuring out before the pandemic how to price the offerings, Hopper turned them into high-margin products that now account for nearly 40 per cent of revenues, Mr. Lalonde said. The company is also partnering with consumer-facing giants to power their travel booking services, starting last year with Capital One Financial Corp., a Hopper investor.
“Hopper’s total market opportunity has expanded 10 times at least” with its partnership strategy, Mr. Steel said. “That is what has gotten everybody excited.” Stack Capital CEO Jeff Parks told The Globe and Mail that his company invested US$6-million as part of the financing because of Hopper’s emergence as a leading travel booking company, its revenue diversification into financial services, its leadership team and its “attractive long-term growth potential” as travel demand returns.
It’s a stark turnaround for a 14-year-old company that treated the pandemic’s arrival as an “extinction-level event.” But Hopper managed to secure US$70-million in capital in May, 2020, led by WestCap Group – the private investment company of ex-Airbnb chief financial officer Laurence Tosi, a Hopper director – and Inovia Capital. Revenues doubled in 2020 as travellers continued to book and sign up for its financial products. In 2021, bookings surged, and Hopper raised another US$345-million in growth capital.
While Mr. Lalonde didn’t disclose revenues, he said Hopper’s gross bookings have increased almost five-fold since before the pandemic and are expected to top US$2-billion this year and double in 2023, with the company taking a 10-per-cent-plus cut.
Mr. Lalonde said he believes that the nascent category of travel financial products that Hopper has created could reach US$100-billion. He plans to take Hopper public once it is generating “several hundred million” dollars and has a greater grasp on the growth potential of its fintech products.
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