Sunday, Aug. 27, 2006, 08:00 PM UPDATED 11:59 AMBy Nick Zulovich
ARLINGTON, Texas - First Cash Financial Services announced it has acquired Auto Master, a finance company focused on the buy-here, pay-here segment of the auto industry, and said it plans to open up to five new BHPH stores in the near future.
Auto Master is based in northwest Arkansas and owns and operates eight BHPH dealerships located in Arkansas, Missouri and Oklahoma. Although First Cash has a diverse business that covers both pawn stores and short-term advance stores, the company has now shifted some of its focus to BHPH stores with this new acquisition.
The stock purchase agreement for Auto Master group closed on Aug. 25. The purchase price, $33.7 million, was funded through a combination of cash, First Cash's credit facility and notes payable to the sellers, executives explained.
"This acquisition represents an exciting and important strategic initiative for First Cash," said Rick Wessel, vice chairman of the board. "We believe that Auto Master has a demonstrated track record of growth and profitability and an excellent business model on which we can build and expand.
"We intent to accelerate this business through our financial, strategic and technology resources," he continued. "The Auto Master management team shares our corporate values and vision. We fully expect that this will be an excellent fit within the First Cash organization, and a significant new growth opportunity for the future. In addition, the acquisition of Auto Master expands and diversifies the First Cash product suite within the growing specialty consumer finance industry. We continue to broaden the range of products and financial services available to our customers."
Company executives describe the Auto Master dealerships as "modern, high-volume facilities, which are located on major streets in well-populated markets." In addition to strategic locations, executives said the stores rely on a coordinated advertising program, repeat customers and referrals to generate sales volume.
Auto Master has on staff fulltime, in-house buyers to source used vehicle inventories from a 10-state area, according to company officials. All inventory acquisitions are processed through a central reconditioning facility in northwest Arkansas, near Bentonville.
Executives also said that Auto Master's consolidated purchasing and reconditioning functions, in addition to centralized inventory and sales management have allowed Auto Master to maintain consistently strong retail margins on sales. Moreover, the majority of Auto Master's underwriting, collection and other administrative functions are based in the central facility, which is another boon, according to executives.
"We are impressed with Auto Master's growth opportunities and the positive short- and long-term potential for the buy-here, pay-here industry as a whole," said Wessel. "Auto Master is well-positioned to expand within the six-state region surrounding its northwest Arkansas hub.
"In addition, we believe that projected population growth trends in the South and Southwest, especially among ‘un-banked or under-banked' 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," he added."
Looking down the road, First Cash said it expects continued growth from its core pawn and short-term advance businesses through a store expansion strategy. Including the projected earnings from Auto Master, the company said it anticipates earnings per share in the range of $1.25 to $1.30 per share for 2007, up 29 to 34 percent over the high end of 2006 revised guidance.
The company said it plans to open three to five new BHPH stores during 2006 and 2007, in addition to opening more stores in its other business areas, including pawn and short-term advance stores.
"The company's existing growth models, which include the opening of new short-term advance stores in the U.S. and new pawn stores in Mexico, will remain unaffected by the acquisition," said Doug Orr, chief financial officer. "We expect Auto Master to be accretive to our earnings, to become an integral part of our future expansion strategy and to add a third significant platform for future growth."
Alan Barron, chief executive officer, added, "This combination is an ideal strategic fit for both First Cash and Auto Master in terms of similarity of operating styles, corporate cultures, customer synergy and geographic overlap. Additionally, buy-here, pay-here automotive retailing and related financing activities will provide additional revenue diversification for First Cash.
"The funding of this acquisition and investments in Auto Master's future growth represent an excellent utilization of a portion of anticipated excess cash flows currently generated by First Cash," Barron said. "Most importantly, Auto Master's strong profit margins and growth potential will complement and further improve First Cash's successful operating model. We are confident that this strategic acquisition will add significant accretive long-term value for our shareholders."
According to executives, Auto Master's revenues reached $44 million in fiscal-year 2005, and unaudited revenues for fiscal-year 2006 are projected to hit $53 million to $55 million.