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Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
Preparing Your Payday Advance Business for Sale
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Preparing Your Payday Advance Business for Sale

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  • 1. PREPARING YOUR PAYDAY ADVANCE BUSINESS FOR SALE Panelists Presentation 2008 CFSA Annual Meeting and Conference Las Vegas, Nevada March 7, 2008
  • 2. Preparing Your Payday Advance Business For Sale• What are some of the “value drivers” in your industry? – Mature Stores. “Our more mature branches are producing excellent results this year, with comparable branches experiencing a 21.5% improvement in gross profit versus last year,” noted QC President and COO Darin Anderson in a third quarter 2007 report. – Net Income Growth. “While our stock price has been challenged by what has happened in the finance sector and the larger economy, we continued to do what we said we would do and delivered our 22nd consecutive quarter of year over year net income growth.” Joe Rotunda, CEO, EZCORP, in a 12/31/07 year end report.
  • 3. Preparing Your Payday Advance Business For Sale• Payday Industry Value Drivers (continued) – Top Line Revenue. “Advance America…reported second quarter total revenues for the quarter ended June 30, 2007 increased 11.6%...compared to…the same period in 2006.” Commenting on the second quarter 2007 results, Advance America’s President and CEO Ken Compton said, “We are please with our tenth straight quarter or revenue growth…” – Bad Debts. “Advance America’s provision for doubtful accounts as a percent of total revenues for the quarter ended June 30, 2007 was 17.7% compared to 17.6% for the same period in 2006”
  • 4. Preparing Your Payday Advance Business For Sale• Payday Industry Value Drivers (continued) – Top Line Revenue. “Advance America…reported second quarter total revenues for the quarter ended June 30, 2007 increased 11.6%...compared to…the same period in 2006.” Commenting on the second quarter 2007 results, Advance America’s President and CEO Ken Compton said, “We are please with our tenth straight quarter or revenue growth…” – Bad Debts. “Advance America’s provision for doubtful accounts as a percent of total revenues for the quarter ended June 30, 2007 was 17.7% compared to 17.6% for the same period in 2006”
  • 5. Preparing Your Payday Advance Business For Sale• Payday Industry Value Drivers (continued) – Branch Operating Costs. “Branch operating costs increased…to $22.5 million during the three months ended September 30, 2007, compared to $22.4 million in the same prior year period”, per Darin Anderson. – Corporate Expenses. “Regional and corporate expenses increased to $8.7 million during the three months ended September 30, 2007 from $7.2 million in third quarter 2006”, stated Darin Anderson. – Cash Flow, Cash Flow, CASH FLOW!!!
  • 6. Preparing Your Payday Advance Business For Sale• Payday Industry Value Drivers (continued) – AEA Key Statistics (Data provided by Capital IQ) at 9/30 » Trailing P/E 9.23 » Profit Margin 8.68% » Operating Margin 16.97% » Return on Assets 15.22% » Return on Equity 21.13% » Total Debt/Equity 0.389 » Current Ratio 6.337
  • 7. Preparing Your Payday Advance Business For Sale• Acquisition Activity Examples – 12/17/07 “Dollar Financial Corp has completed the previously announced acquisition of 82 payday loan and check cashing locations…” – 11/01/07 QC Holdings reports, “Third quarter 2007 revenues also includes approximately $4.2 million from branches added during the second half of 2006, including 50 South Carolina branches acquired in December 2006.”
  • 8. Preparing Your Payday Advance Business For Sale• What can you do to increase value? – Address weaknesses and capitalize on strengths BEFORE entering negotiations. – It may take months or years to maximize value. – Be prepared for due diligence. – Plan to identify problem areas and what to do about them.
  • 9. Preparing Your Payday Advance Business For Sale• Factors affecting value – Are the company and its products reaching maturity? Studies have shown that maximum value is achieved when a sale occurs when revenues and profits are still growing at or above historical rates. – Can the company show a history of stable growth and profitability? How reliable are the company’s financial statements? – Is the industry reaching a mature stage or experiencing rapidly changing technology?
  • 10. Preparing Your Payday Advance Business For Sale• Factors affecting value (continued) – Are the products losing their uniqueness and/or is the company unable to make the commitment necessary to invest in new product development? – Is competition likely to increase? – Is the company at or near capacity, such that continued growth requires significant capital investment? – Does the company lack a well-defined strategy for future growth and profitability?
  • 11. Preparing Your Payday Advance Business For Sale• “Recasting” the Financial Statements – Nonrecurring items, such as unusual bad debt or litigation expenses, or the effects of a discontinued operation – Related party transactions, or other transactions not representing arms-length or market value. (This category frequently involves officer compensation and other discretionary expenses that may be higher than industry norms for unrelated management employees.)
  • 12. Preparing Your Payday Advance Business For Sale• “Recasting” the Financial Statements (continued) – Adjustments to eliminate income or losses from nonoperating assets, including dividends from securities, interest income and gains and losses on their sale. – Differences due to the accounting treatment of certain transactions, including capitalization policies.
  • 13. Preparing Your Payday Advance Business For Sale• “Recasting” the Financial Statements (continued) – Adjustments to the balance sheet includes nonoperating items or items the buyer might consider undesirable. Examples include loans to or from employees, excess equipment, cash value of life insurance or marketable securities. – If the business owns real estate, the seller may want to place the asset in a separate corporation and enter into a lease with the buyer at market rent.
  • 14. Preparing Your Payday Advance Business For Sale• Obtaining Professional Advice – Prepare a preliminary valuation analysis to establish a price that would be acceptable to the seller (let the potential buyers determine their own asking price – beauty is in the eye of the beholder) – Prepare a financial memorandum – Consider different transaction structures and the tax consequences of each – Identify and contact logical buyers
  • 15. Preparing Your Payday Advance Business For Sale• Obtaining Professional Advice (continued) – Evaluate any proposed transactions – Assist the buyer in locating financing, if necessary – Assist with negotiation and closing
  • 16. Preparing Your Payday Advance Business For Sale• Getting Your Business In Shape for Selling – Keep records and management reports current – Prepare a business plan or budget for prospective years – Prepare an organization chart showing functional areas of responsibility – Document processes used and compliance with regulations
  • 17. Preparing Your Payday Advance Business For Sale• Getting Your Business In Shape for Selling (continued) – Make promotional materials and operating manuals available – Collect and industry information available from trade associations or independent research – Provide status of state legislation in all states having business operations
  • 18. Preparing Your Payday Advance Business For Sale • Summary• Planning is the most important issue• Understanding what factors affect value and planning to control them to increase value• Planning to reconstruct financial statements to present a more normalized picture to a potential buyer• Planning to seek the advice of an investment professional during a stressful period• And finally, planning to spend the proceeds!
  • 19. For More Information Contact… MIKE COSTELLO mikecostello@decosimo.com 423-756-7100

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