EZCORP Inc. (NASDAQ: EZPW) has entered into a deal to monetize its consumer loans business called Grupo Finmart. The primary business focus for Grupo Finmart is lending to employees of government agencies in Mexico. But Grupo Finmart has been a source of stress for EZPW in the recent years, causing the company to post a massive loss from continuing operations in 1Q2016.
To get rid of the many challenges it is facing, EZPW announced a strategic review of its corporate structure and in April, it reached a decision to sell Grupo Finmart. That is where it is right now and the latest is that a buyer has shown up to acquire the asset.
According to EZCORP Inc (NASDAQ: EZPW), it is selling Grupo Finmart to Alpha Holding, another player in the Mexican consumer lending industry. But Alpha Holding has consumer lending operations in Colombia as well.
A potential $10 million loss
Under the sales agreement, Alpha Holding is paying $50 million to own Grupo Finmart. But the actual amount that EZPW will receive when the deal closes could be smaller than $50 million. EZPW said it expected some adjustments to the deal that could cost it about $10 million. As such, it appears that EZPW could only walk away with $40 million or something close to that.
Regardless of the revenue that the sale of Grupo Finmart yields for EZPW, selling it will eliminate a major problem.
Getting rid of aching tooth
In 1Q2016, Grupo Finmart was responsible for impairment charge relating to goodwill of $73.9 million. That pushed EZCORP Inc (NASDAQ: EZPW) to loss from continuing operations of $73 million in the quarter. If EZPW is to move to profitability, it was only prudent that it gets rid of the aching tooth: Grupo Finmart.
Where will EZCORP Inc (NASDAQ: EZPW) put the proceeds?
EZCORP Inc (NASDAQ: EZPW) has already identified where it wants to put the funds generate from the sales of Grupo Finmart. The company said it intends to use the money to grow its pawn shops in the U.S. and Mexico.
In 1Q2016, EZCORP Inc (NASDAQ: EZPW) generated revenue of $201.9 million, which pulled back 2% from a year earlier thanks to unfavorable foreign exchange rates.