Will it be enough? Will the $100
million sale of 295 stores be enough to put Rent Way back on the
path to profitability?
Rent Way has been laboring under the crushing weight of a $300
million, (currently $285 million) 16% debt load. Interest payments
of that magnitude accounted for a large portion of recent
Despite announcements of 'plans in the works', it was becoming
obvious that lenders were unwilling to re-finance Rent Way's
debt without a significant change in structure. Several
initiatives were undertaken; Cost cutting initiatives including
staffing reductions, marketing campaigns, 120 days SAC, etc.
None had a significant impact on results. The sale of these
stores will reduce debt by about 25%, (Rent Way expects to net
65-75 million) making a refinance more
attractive to lenders.
Revenue will also decrease by 1/3,
Correction: Revenue will decrease by 25%, so the
net effect on Rent Way's future is unclear.
The selling price was high by today's standards, 10 times
monthly revenue. Rent a Center reported during the
Q3 conference call that they typically pay between 6 and 10 times
revenue for acquisitions, less for account only purchases, more
for an entire operation. While there is significant value in
being able to increase your store count by 10% in a single
acquisition, many of the acquired stores are in markets already
penetrated by Rent a Center.
How this will affect the 1,000 plus Rent Way employees is
unknown. Getting this type of news is disturbing anytime...being
told that your "Destiny is unclear", and your "Position will be
evaluated" 7 days before Christmas is disturbing at best,
terrifying at worst. 24 hours have passed since the
announcement. The initial shock has worn off and fear is
turning to anger. Logically, employees know it's the right
decision. Emotionally, it's a whole different ballgame.
The $64,000 question is 'Will it be enough'? A consensus among
experts seems to be... maybe. One analyst referred to the sale as "A
tough decision that is absolutely necessary for the short term
survival, and long term health, of Rent Way". Another
stated "This was a 'have to', not a 'want to' deal". She added,
"Sometimes you have to cut off an arm to save the body".
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