Rent-A-Center Inc (NASDAQ:RCII) surged on news of a buyout deal. The Plano, Texas-based rent-to-own company increased when Vintage Capital Management, LLC agreed to take the company private. Now, as RCII stock is removed from trading, the company embarks on a new era as a private company. Many will wonder if this serves as the best move for investors. Although the direction in which Vintage will take Rent-A-Center remains unknown, the deal creates a chance to recover and move the company in a new direction outside of the public eye.
Terms of the Deal
RCII stock increased by more than 22% when the buyout was announced. Under terms of the deal, Florida-based Vintage Rodeo Parent, LLC, a subsidiary of Vintage Capital, will acquire RCII stock at $15 per share. This amounts to a purchase price of $1.365 billion, including debt. The company expects the deal to close at the end of 2018.
RCII stock has been struggling recently as a public company. The stock peaked at just above $40 per share in July 2013 and has seen a general downtrend ever since, going as low as $7.22 per share earlier this year. This stands in contrast to the long-term uptrend the stock had seen since its IPO in 1995. Moreover, revenues were on track for a third consecutive decline. RCII stock saw revenues of $3.28 billion as late as 2015. For 2018, analyst forecast revenue levels of $2.6 billion.
As mentioned earlier, Vintage will assume the company’s debts, which stood at $597 million as of the last quarterly report. Although this represents a huge reduction in debt from the $1.043 billion the company saw at the end of 2014, it still stands as a substantial burden for a company for a company with a market cap of around $785 million.
RCII Stock Faced Years of Decline
RCII has also struggled to compete against its peers, especially its most direct competitor, Aaron’s (NYSE:AAN).
Aaron’s continues to grow both its revenue and its stock price. Aaron’s and Rent-A-Center have a history of bringing in comparable amounts of revenue. As late as 2014, RCII stock was outperforming AAN concerning both revenue and profits. However, in 2015, Aaron’s profits greatly exceeded that of Rent-A-Center. Even if one takes out the $1.17 billion impairment charge to goodwill that RCII saw in 2015, Aaron’s outperformed Rent-A-Center on net income, earning nearly double the amount of before-tax income.
Today, RCII continues to fall behind. Aaron’s brought in about 25% more revenue than did Rent-A-Center in 2017. However, AAN supports a market cap of about $3.15 billion, over four times higher than the market cap for RCII stock. Other larger competitors, such as Best Buy (NYSE:BBY) and Walmart (NYSE:WMT), offer but do not specialize in rent-to-own options.
Given its recent performance, going private under new management looks to be the right move for RCII stock. Vintage also owns the controlling interest in Buddy’s Home Furnishings, another rent-to-own company. Whether Vintage will combine Rent-A-Center and Buddy’s remains unclear. However, Vintage’s experience in the industry should serve them well. Also, holders of RCII stock will receive a premium over the stock prices seen in recent months. Hence this deal could bring benefits to all involved.
Final Thoughts for RCII Stock
The purchase by Vintage Rodeo allows Rent-A-Center investors the opportunity to profit in the short term and possibly recover from what had previously become a declining investment.
Vintage will purchase RCII and its debt for $15 per share. In addition to taking on company debt, it also brings a wealth of experience in the rent-to-own industry. This could bring Rent-A-Center new life, perhaps someday returning to public trading as a stronger company. Depending on when investors purchased RCII stock, they can also see a significant short-term return or recover some of the losses that long-term investors have suffered.
What happens to Rent-A-Center going forward remains in question. However, this move should serve as a positive move for all involved.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.