Aaron’s said Tuesday that it has acquired Progressive for about $700 million in cash. The seller was Summit Partners. Headquartered in Atlanta, Aaron’s is a lease-to-own specialty retailer of residential furniture, consumer electronics, home appliances and accessories.
ATLANTA and DRAPER, Utah, April 15, 2014 /PRNewswire/ — Aaron’s, Inc. (NYSE: AAN) the leading lease-to-own specialty retailer that offers flexible payment options for credit-challenged individuals, today announced that it has acquired Progressive Finance Holdings, LLC (“Progressive”), a merchandise lease-to-own company from Summit Partners, in an all-cash transaction valued at approximately $700 million. Aaron’s expects the transaction to be double digit accretive to cash earnings per share in 2014 and significantly more accretive in 2015.
Through this acquisition, Aaron’s gains an important entry point into the rapidly-growing virtual rent-to-own (“RTO”) market and will operate Progressive as a wholly-owned subsidiary of Aaron’s. John Robinson, Progressive’s Chief Executive Officer, will join the Aaron’s executive leadership team as Executive Vice President and CEO of Progressive, reporting directly to Ronald W. Allen, Chief Executive Officer of Aaron’s.
“This is a highly complementary and transformative acquisition for Aaron’s, and we are eager to capture the significant opportunities this combination will provide for our customers, franchisees, and shareholders,” said Allen. “Aaron’s remains firmly committed to our goals of providing quality, affordable merchandise and earning high customer satisfaction by offering favorable lease terms and outstanding customer support. We expect that with Progressive’s best-in-class virtual customer payment capabilities, coupled with our industry leading traditional lease-to-own model, we will create an omni-channel business, providing customers with better payment options, and enhancing Aaron’s competitive position. In addition, we have a very high regard for John Robinson and the entire Progressive management team, and look forward to welcoming them to Aaron’s.”
Allen continued, “Today’s announcement is the culmination of discussions that began in May of last year, and is consistent with the views we have heard from the investment community. The transaction is expected to create an immediately profitable additional revenue stream. We are confident that with Progressive we will be able to accelerate profitable growth in order to deliver increasing returns to Aaron’s shareholders.”
Founded in 1999, Progressive has grown to become the leading provider of virtual lease-to-own programs in the U.S. Progressive offers point-of-sale lease and purchase programs to customers who do not qualify for traditional, FICO-based financing. Progressive’s scalable software product provides easy to use, automated lease processing, eliminating the need for specialist in-store personnel. Progressive currently serves 5,500 retail partners with approximately 15,000 locations, including 40 of the top 100 and eight of the top 20 U.S. furniture and bedding retailers. Select merchant partners include Mattress Firm, Big Lots, Art Van Furniture and Sleepy’s. Progressive is the preferred lease provider to the U.S. prepaid wireless industry and also partners with leading U.S. consumer electronics, appliance and jewelry retailers. Maintaining Progressive’s existing relationships and business arrangements with its retail partners will be a top priority for Aaron’s.
“We are extremely excited to join the Aaron’s team and bring Progressive’s unique lease purchase programs and customer-friendly interface to Aaron’s customers,” said John Robinson. “In Aaron’s, we have found an ideal partner that will support our strategic initiatives and existing operations, including continuing to provide our retail partners with the customer services they have come to expect from Progressive. We have already begun to work with the Aaron’s team to ensure a smooth transition and we look forward to the exciting new growth opportunities we will have as part of the Aaron’s platform.”
Strategic and Financial Benefits
Market Leading Technology: Progressive’s proprietary decision engine technology will enable Aaron’s to offer solutions to customers underserved by traditional retailers, and provide a faster, more robust and seamless customer experience. The Progressive model brings Aaron’s a strong point-of-sale offering at highly attractive retail partners. This eliminates the need for program-specific, in-store staffing, lowering integration and training costs and allowing Aaron’s to compete aggressively with staffed kiosk models.
Accelerated Growth Opportunity: With Progressive’s strong retail relationships, Aaron’s reach will now extend to consumer segments in the virtual rent-to-own market as well as those outside its traditional customer base. Aaron’s expects this additional sales channel to create a significant incremental revenue opportunity for the Company, driving overall growth and substantially improving earnings and operating cash flow.
Expanded Customer Base: Aaron’s expects that the combination with Progressive will provide significant opportunities for further growth. These opportunities include the addition of Progressive’s customer enrollment software and automated collections capabilities within Aaron’s existing business, call center consolidation and utilizing Aaron’s locations as a reverse logistics solution for Progressive. Further, Progressive will enable end-to-end online transaction capability which will allow Aaron’s to attract a growing younger customer segment. In addition, by leveraging Aaron’s footprint, as well as Progressive’s scalable technology, Aaron’s expects to generate meaningful operational synergies.
Substantial Benefits for Aaron’s Franchisees: By partnering with Aaron’s and its more than 2,130 locations, Progressive will be able to expand its customer base into the unbanked market. These unbanked customers will be able to visit Aaron’s stores to make cash payments, driving incremental foot traffic into Aaron’s company-operated and franchisee stores. Further, Aaron’s expects Progressive’s payment program to enhance its relationship with customers by providing additional purchase options, flexibility and a seamless transaction.
Further Strengthens Aaron’s Management Team: Progressive’s highly-respected leadership team will bring to Aaron’s valuable technology and business process acumen, and an impressive track record of capturing growth in the virtual RTO market. It is expected that Progressive’s current executive leadership team, led by John Robinson, along with Ryan Woodley, Chief Financial Officer and Chief Operating Officer; Curt Doman, Chief Technology Officer; Blake Wakefield, SVP Sales and Marketing; and Frank Laura, Chief Information Officer, will continue to serve in their current capacities as part of Aaron’s.
Aaron’s expects the transaction to be double-digit accretive to cash earnings per share in the current fiscal year and significantly more accretive to cash earnings per share in 2015.
The transaction was financed through a combination of $200 million cash-on-hand, a $126 million senior debt facility, $300 million in private placement notes, and a revolving credit facility draw. The transaction was signed and closed simultaneously.
Aaron’s and Progressive will hold a conference call to discuss the transaction on Tuesday, April 15, 2014, at 8:30 a.m. Eastern Time. The public is invited to listen to the conference call by webcast accessible through the Aaron’s website, www.aaronsinc.com, in the “Investor Relations” section. The webcast will be archived for playback at that same site.
Stephens Inc. is serving as financial advisor to Aaron’s in connection with the acquisition of Progressive and is providing a fairness opinion, and Houlihan Lokey Financial Advisors, Inc. rendered a fairness opinion to the Board of Directors of Aaron’s in connection with the acquisition of Progressive. Kilpatrick Townsend & Stockton LLP is serving as legal advisor to Aaron’s in connection with the acquisition of Progressive. The Blackstone Group and Goldman, Sachs & Co. are serving as financial advisors to Aaron’s in connection with its review of opportunities to enhance long-term value for shareholders. Wunderlich Securities is serving as lead financial advisor and Kirkland & Ellis LLP is serving as legal advisor to Progressive. BMO Capital Markets is also serving as financial advisor to Progressive.
About Aaron’s, Inc.
Aaron’s, Inc. (NYSE: AAN), a leader in the sales and lease ownership and specialty retailing of residential furniture, consumer electronics, home appliances and accessories, has more than 2,130 Company-operated and franchised stores in 48 states and Canada. Founded in 1955 by entrepreneur and Chairman Emeritus R. Charles Loudermilk, Sr. and headquartered in Atlanta, Aaron’s has been publicly traded since 1982. For more information, visit www.aarons.com. Aaron’s, Inc. includes the Aarons.com and ShopHomeSmart.com brands.
Progressive is a provider of web-based lease-to-own financing programs for retailers. The company currently services more than 5,500 retailers across the United States.
About Summit Partners
Founded in 1984, Summit Partners is a growth equity firm that has raised nearly $15 billion in capital. Summit has invested in more than 385 companies in financial technology, software, healthcare, and other growth sectors. These companies have completed more than 130 public offerings, and more than 140 have been acquired through strategic mergers and sales. Notable financial technology and payment companies backed by Summit Partners include Acturis, Clearwater Analytics, FleetCor, Flow Traders, Ogone, optionsXpress and Sun Trading. Summit maintains offices in North America and Europe, and invests in companies around the world. For more information, visit www.summitpartners.com or follow on Twitter at @SummitPartners.
(Correction: A previous version of this report included an incorrect headline. The report has been fixed.)