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Rent-A-Center's (RCII) Acima Buyout to Boost LTO Solutions

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Rent-A-Center, Inc. (RCII - Free Report) is keen on enhancing its omni-channel platform to offer customers a seamless experience across channels, markets, products and brands. In recent developments, the company has agreed to buy Acima Holdings LLC in a cash-and-stock transaction worth $1.65 billion. The deal, which is likely to conclude in the first half of next year, comprises $1.273 billion in cash and around 10.8 million shares of the company’s common stock now valued at $377 million. The deal is subject to customary closing conditions, which also include the clearance under the Hart-Scott-Rodino Antitrust Improvements Act.

Notably, this buyout will strengthen Rent-A-Center and enhance its virtual lease-to-own (“LTO”) offerings. Through this, the company will be able to provide a frictionless LTO experience to its retail partners and customers through an integrated omni-channel strategy. It will expand the company’s virtual partner base and efficiently cater to consumers with a flexible LTO approach. In relation to the latest transaction, Rent-A-Center has obtained $1.825 billion in debt financing commitments from J.P. Morgan Securities LLC, Credit Suisse and HSBC Securities (USA) Inc.

Founded in 2013 in Salt Lake City, UT, Acima is a growing and profitable LTO fintech company. It will continue to operate out of Salt Lake City and will be incorporated at the company’s Preferred Dynamix platform. Hence, Acima’s management team will report to Preferred Dynamix’s executive vice president. The combined business will be reported in the Preferred Lease segment.

Management expects robust synergy potential across both the Rent-A-Center and Preferred Lease segments. The latest combination is likely to result in anticipated pro forma 2020E revenues of about $4.1 billion and $540 million adjusted EBITDA. Over the long term, the buyout will boost the company’s revenues, profitability and cash flow generation.

In addition, Acima’s buyout is expected to strengthen Rent-A-Center’s position as a premier fintech platform across both traditional and virtual lease-to-own solutions. It will further diversify the company’s retail partner base and product verticals, and will allow it to compete for high-value national retail accounts more effectively. Further, the buyout will enhance the company’s digital payment solutions and communication with a superior back-end infrastructure to resonate with the customer and LTO partner requirements. This will also reinforce Rent-A-Center’s e-commerce platform with an effective integration at point-of-sale to boost retail partner digital transactions.

Markedly, Acima operates in more than 15,000 active retail partner locations and e-commerce platforms. It is anticipated to generate $1.25 billion in revenues in 2020, significantly up from $97 million revenues delivered in 2016. Moreover, Acima is projected to record $225 million in adjusted EBITDA for 2020.

What Else?

We note that Rent-A-Center is one of the major omni-channel lease-to-own providers for the credit-constrained consumer. Management is optimistic about its digital efforts to expand the overall presence and lease-to-own share.

Also, the company is adding functionality to boost customer experience at the point of sale, including a multi-store e-commerce test via the Preferred Lease decision engine. Moreover, it is expanding electronic payments that are boosting merchandise returns and improved customer payment activity. Apparently, e-commerce transactions at increased 71% in the third quarter.

Impressively, the Plano, TX-based company has seen its shares surge as much as 20.1% in the past three months, crushing the broader S&P 500 Index’s 12.9% growth and the industry’s 5.9% rise. Rent-A-Center currently has a Zacks Rank #2 (Buy).

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