Cash America Buys CashNet
July 10, 2006 - Belmont, California
Cash America International said Monday it will buy CashNetUSA for $35 million in a move to give the brick-and-mortar loan company a better online distribution channel for short-term cash advances.
Cash America, the largest provider of pawn loans, has a network of 717 lending locations that offer cash advances in 20 states, but has been looking to expand into the online cash advances market.
The company has largely been depending on its stores to offer loans under the brand names Cash America Payday Advance and Cashland. It offers check-cashing services under the brand name Mr. Payroll. The acquisition of privately held CashNetUSA will help change that, said the company.
"By expanding our product delivery platform to include Internet access, we believe that we are positioned to serve a new customer segment beyond the reach of our current brick-and-mortar lending locations," CEO Daniel R. Feehan said in a statement. "This will allow us to satisfy customers who seek short-term cash advances instead of higher-cost alternatives to meet their credit needs with ease and convenience."
The transaction is expected to be completed within two months. Shares of Cash America rose $2.19 to $33.10 in recent trading.
Internet lending is seen as the fastest-growing segment in the short-term advance industry and is expected to capture a larger share of the market than brick-and-mortar stores over the next three to five years.
Prominent among online payday loan players was Chicago-based company, The Check Giant, which created the CashNetUSA brand.
Formed in May 2004, CashNetUSA offers cash advances in 27 states and its gross cash advance portfolio recently reached $22 million. CashNetUSA employs 125 people, mostly in the areas of customer service, collections, and technology, and the company recently passed the inflection point of profitability. So far, the startup is estimated to have served over 250,000 customers.
"CashNetUSA is not the largest but among the top 10 or 15 players and among the very few to have undertaken the task of obtaining licenses state by state and building a robust proprietary technology platform to deliver loans in strict compliance of the state laws," Mr. Feehan said in a conference call.
CashNetUSA, however, does not currently operate in Texas. But Cash America said it would build online operations there when the acquisition is completed.
Analysts gave the deal a thumbs-up. "We are encouraged by the acquisition as it will give Cash America a presence in the fastest-growing segment of the payday loan industry," Dennis Telzrow, managing director for Stephens, wrote in a research note. "The deal is expected to add roughly $0.04 to $0.05 per share in fiscal year 2006."
Cash America said it would continue its offline expansion by opening more stores. "We recognize the online ease of use; relative anonymity appeals to a larger number of people who might be reluctant to conduct business in brick-and-mortar locations," said Mr. Feehan. "But we also believe that operating in both channels will help us achieve more customers than with a single distribution strategy."
In a separate announcement, Cash America said results for its second quarter ended June 30, 2006 will exceed the initially published guidance for earnings per share. The company said it expects earnings of $0.30 to $0.31 per share compared to its previous guidance of $0.26 to $0.28 per share.
Red Herring, P. Ganapati, Staff Writer
Cash America International Inc. (NYSE: CHS)
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