Yesterday’s Value That Company!
Also, Why am I so dumb?
Finally, Why listen to me? 🤷♂️
Here we go!
A few years ago, I get a call from an acquaintance (we have several mutual good friends). He’s running a fast growing consumer finance company and needs cash...
It isn’t “I need $5 Million by Friday” but it’s close...
How fast are they growing? By the time we are negotiating the deal a week or 10 day later, the ask is up to $10 Million...
We did a little time travel yesterday on Value That Company, and I put you back in my shoes 3 years ago...
Based on these deal metrics, the correct valuation when I was looking at it was $88-200 Million (basically where I was)... take a midpoint of $150 Million and I could have done a 10x in less than 3 years
So, do I feel bad? Maybe, but I’d make the exact same decision again. Here are a few reasons:
1) Circle of Competence/Discipline - This deal was a success for me because I stayed disciplined within what I know. I don’t like/try to avoid risks I don’t understand
2) An honest congratulations to all involved (I have at least 3 friends and a former next door neighbor in the equity) ...
Why should their success diminish mine?
3) I believe there is still risk in this business that I don’t understand. The unit economics make no sense for the borrower (I’ve told my children to NEVER finance something in the store). Will a new administration/CFPB care?
IDK, but I’m unwilling to take the risk...
4) I haven’t looked at the financials for Rent-A-Center but I actually think this is a good deal for them. It’s a way to modernize their business while staying within their competence...
(I won’t be investing, though - see #1)
Final) Thank You for following along as I take this Twitter journey. I confess that I love it!
This company does VERY sub-prime “leases” for POS transactions (tires, furniture, eyeglasses, etc). If a customer doesn’t qualify for the store credit card these guys step in for “lease to own.”
Markups are in the 100% context. Last year they established $195 Million of new leases and collected over $210 Million of lease revenue.
Senior debt of $65 Million; Jr debt of $10 Million.
This company has 10 employees that run around the world refurbishing woodwork (mostly tables) in Apple stores. Most of the expense (labor, travel, etc) goes into COGS.
My thoughts tomorrow, but I can’t wait to see what you come up with!
Also, a final note from last week on the Pest Control deal ... Did you know that per the Department of Agriculture, Pest Control is an “essential service?”
The challenge here is the zero growth unless additional capital is provided. So there are three options:
A) Sell to a strategic (another pest company). It’s well established in this industry that these companies can be had for $1.5x ARR so in this case ~$15 M
B) They could not sell, in which case I think @guessworkinvest makes a pretty compelling case below that the business is worth ~$30 M if they just sat and harvested the cash flow.
It’s time for another edition of “Value that company!”
Today, Pest Control - NW US!
$10 M ARR (24k customers at $100/q plus a little one-time)
95+% Customers are on cc autopay.
80% GM
$1.5 M SG&A
20% attrition in customer contracts can be replaced with part of SG&A