Cash Converters acquires UK-based franchise Capital Cash for $24.7 million, hopes to set up European Hub

Among the most satisfactory transactions is one that brings you financial returns for bygone items—old shoes, computers, and the like. You end up helping the environment, too by selling your old stuff instead of throwing them away. That’s why second-hand retail companies, like Cash Converters (ASX: CCV), catch consumers’ fancy.  

To give a (further) leg up to its business model, the Company is acquiring UK-based household appliances retailer Cash Capital for $24.7 million. Cash Converters is currently the master franchisor to 188 stores in the UK, of which Capital Cash is the largest group of stores, operating 42 franchise stores.

The Cash Capital acquisition is part of the Company’s strategy to acquire value-accretive franchise store networks. 

Cash Converters Managing Director, Sam Budiselik, commented, “We continue to assess opportunities to invest our capital sensibly, to generate value for our shareholders. We are particularly excited to announce an agreement on terms to acquire the largest Cash Converters franchise store network in the UK and to integrate a proven management team into our corporate operation.” 

He added, “I would like to take this opportunity to thank the Capital Cash team for the investment made in establishing our brand in local markets over twenty years, as we now look forward to consolidating and growing a corporate network of stores across the UK.”

In FY22, Capital Cash brought in an EBITDA of $5.1 million, valuing the business at up to 4.8 times EBITDA. Its post-Covid resilience catapulted it to become the UK’s largest unlisted pawnbroker. Having been in the region for two decades, the acquisition allows Cash Converters to tap into the thriving corporate space there. 

What’s more? This might be a natural progression for both companies. The Managing Director of Capital Cash, Carl Murray, and its Finance Director, Paul Graham, have previously served as employees at Cash Converters. So, they already know the business and have unique insight from the perspectives of both the franchisor and franchisee. 

Murray will become the Cash Converters UK CEO as a part of this acquisition and will undertake more franchise store acquisitions and a measured plan for greenfield store site expansion. 

In H1 FY23, Cash Converters’ revenue rose 24% to $142.4 million. Its profits and earnings grew, too, as it launched new products and undertook more franchise acquisitions. In the first half, it acquired its Master Franchisor in New Zealand which was bringing in a profit of about $3.5 million. It plans on keeping with these strategies for the rest of the year, with one of its goals being to establish a European Hub in the UK. 

Though it suffered a $110 million goodwill write-off setback in H1 FY23 due to a legislation change, it is counting on acquisitions like these to make up for lost asset values. 

The acquisition will be funded through the Company’s existing cash reserves and is expected to be completed as early as mid-2023.