First Cash Financial Services Inc., a pawn and payday lender in Arlington, Tex., has acquired Auto Master, an automotive retailer and finance company based in Springdale, Ark.
The $33.7 million purchase was funded through cash, First Cash's credit facility, and notes. It closed Friday and was announced Monday.
Auto Master owns eight so-called buy-here/pay-here dealerships in Arkansas, Missouri, and Oklahoma, specializing in used cars. Buy-here/pay-here dealerships extend credit directly to consumers rather than through a separate finance company.
Daniel T. Fannon, an analyst with Jefferies & Co. in San Francisco, said Auto Master complements First Cash well.
The acquisition "provides another growth aspect" for First Cash, Mr. Fannon said. He maintained his "buy" rating on First Cash shares, which were trading at $19.67 Tuesday morning, up 10.8% from Friday's close.
Auto Master reported revenue of $44 million, for its 2005 fiscal year and projects revenue of $53 million to $55 million for fiscal 2006.
Because of the acquisition, First Cash boosted its 2006 earnings guidance, previously 94 to 95 cents a share, to 96 to 97 cents. Including the projected accretive earnings from Auto Master, it is initiating guidance for 2007 in a range of $1.25 to $1.30 per share, which would top the upper end of the revised 2006 guidance by 29% to 34%.
Rick Wessel, vice chairman of the First Cash board, said in Monday's press release announcing the acquisition, "We intend to accelerate this business through our financial, strategic, and technology resources."
First Cash plans to open at least three buy-here/pay-here dealerships in the next 16 months. Mr. Wessel said it sees opportunities to expand in the six-state region surrounding Auto Master's hub in northwest Arkansas.
"We believe that projected population growth trends in the South and Southwest, especially among 'un-banked' or 'under-banked' consumers, should continue to create long-term demand for affordable used vehicles and financing, as well as opportunities for expansion into other markets where First Cash operates," Mr. Wessel said in the release.
First Cash said that ahead of the acquisition, it amended its long-term bank credit facility to increase the amount available from $25 million to $50 million and to extend it until April 2009.
The line of credit will continue to bear interest at the London interbank offered rate plus a fixed margin of 1.375%. First Cash is using funds drawn on the line of credit to fund a portion of the purchase, but expects to have "significant additional borrowing capacity under the facility to support working capital needs as they arise," it said. "Internally generated cash flow should result in a near term payoff of the debt portion" of the purchase."
Stephens Inc. represented Auto Master in the sale.
