Wednesday, November 26, 2008

Rent-A-Center will continue to buy competitors, plans to acquire 50 stores this year, CEO says

Rent-A-Center (NASDAQ:RCII), a Plano, Texas-based rent-to-own company, will acquire smaller competitors, said Chief Executive Officer Mark Speese. These could be companies with as few as two or three locations or as many as 75, he said. Rent-to-own companies rent furniture, appliances and computers at weekly or monthly rates and will transfer ownership to the renter after a specified period of time. 
The company, with a market capitalization around USD 807m, has a 40% market share; its only significant competitor is listed, Georgia-based Aaron Rents, with a USD 1.18bn market capitalization. Speese said that Rent-A-Center (RAC) could be interested in acquiring its next largest competitors, including Florida-based Buddy's Home Furnishing, Texas-based Bestway, Virginia-based Premier Rentals, and Indiana-based American Rentals, "if they came to us." Each of these companies has 75 or fewer locations. 
In 2006, RAC acquired Rent Ways for about USD 567m and Bear Stearns advised on the transaction. Speese said that the company may not hire a banker for smaller transactions, but would work with any banker that brought a deal to it. Its law firm is Fulbright & Jaworski. 
RAC has USD 99m in cash on its balance sheet and will have USD 100m to 120m in free cash flow next year, all of which may be used for acquisitions, to pay down debt or for share repurchase. The company usually acquires opportunistically when it is approached by potential targets, said Speese. 
Stores can be valued at six to 12 times monthly revenue each, and revenue can go from USD 35,000 to 70,000, said Speese. Sometimes RAC will close an acquired location and transfer its accounts to an existing store. 
RAC recently added check cashing, money transfers and other financial services to about 350 of its stores. 


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