EZCORP Inc (NASDAQ:EZPW) was boosted 16 percent higher yesterday, jumping from the previous closing price of $7.64 to close the regular trading session at $8.90. The unexpected spike arrived after it was announced that the pawn shop chain has agreed to sell its consumer loan business, called Grupo Finmart, for $50 million. More than 2.2 million shares have been exchanged since the news broke, a considerable increase when compared against the company’s average trading volume of 634,427 shares per day.
With its headquarters in Austin, Texas, EZCORP is one of the top pawn loan providers in the United States and Mexico. The company also sells used goods at its pawn stop store locations, with its inventory mostly comprised of collateral that has been forfeited – due to a pawn loan – and standard second-hand merchandise. The company reported the fourth highest revenue of the 36 publicly traded companies based in Austin last year.
The company owns a 94 percent stake in Grupo Finmart, which provides consumer loans to people who work from government agencies in Mexico. While the pawn shop chain told investors that the purchase price for Grupo Finmart was $50 million, it also noted that “closing adjustments” may slash that price by as much as $10 million lower.
Back in February, EZCORP disclosed to its shareholders that it was undertaking a strategic review of Grupo Finmart – a unit of the company that had been dragging down its sales performance recently. Grupo Finmart lost nearly $20 million for EZCORP during the company’s first-quarter, during a three-month period where the company reported a net loss of $7.2 million.
Apart from hurting EZCORP’s balance sheet, Grupo Finmart – along with a number of similar payday loan-style businesses in the US – have been racking up a heavy amount of criticism in recent years. The industry’s bad reputation comes from the perceived unreasonably high interest rates and predatory practices. In December, EZCORP settled a US government investigation into payday lending firms – and ended up forking over $10.5 million.
As its loans business has been negatively impacting its quarterly earnings and getting the company into legal trouble, EZCORP is now shifting nearly all its attention on its pawn shops. After EZCORP completes the sale of Grupo Finmart, 99 percent of its sales revenue will be flowing in from its pawn shop operations.
“Grupo Finmart is a business with great people and I would like to acknowledge the team who have worked tirelessly to both manage the business and work closely with EZCORP, AlphaCredit and our advisers to execute this transaction,” said Stuart Grimshaw, EZCORP’s Chief Executive Officer. “We’re pleased that a buyer of AlphaCredit’s caliber emerged following a competitive bidding process and we believe they will be able to maximize the value of Grupo Finmart.”
Once the transaction has been completed, the debt that Grupo Finmart owes to EZCORP – roughly $49 million at the moment – will be restructured to include quarterly interest payments and principal repayment in yearly installments over a three-year period. Grupo Finmart’s debt that is not owned by EZCORP will either remain the same after the deal is finalized, or it will be refinanced at or before closing. The deal is expected to close by the end of September.