There's an item that I hope I don't understand. Please, someone tell me that "At the end of each of the first four years following the closing, EZCORP will make a contingent supplemental payment equal to six times net income (subject to certain adjustments), minus all consideration payments previously paid." doesn't mean that this acquisition is guaranteed to be dilutive for at least 4 years.
Not too concerned. 6x earnings in 4 years isn't a terrible price to pay. It makes sure the last owners are incentivized to make sure the business is successful going forward under ezpw. If the business shrinks, ezpw is paying 6x. If company grows a lot, payments can grow a lot, but eventually the growing profit will benefit ezpw's shareholders.
I am a long term buyer, and depite the current hick up, ezpw could continue to make acquisitions in the future that will set it up for long term profit growth. Competitors are cheap right now.
It's just that I'm accustomed to seeing language like "The acquisition is expected to be accretive within 2 years." If I'm reading this correctly, it guarantees that this acquisition will not be accretive until at least 4 years have passed. In investor years, that's, well, forever.
Whoever disliked this question: it's a real question. Do you know a reason why that language (taken verbatim from an SEC filing) shouldn't concern me?
EZCorp makes a lot of money. Even a slow growth year for the company is better than most of the market can do. It ought to be making money for the owners. But owner-unfriendly actions, including bizarre deals like the attempted combination with Cash Converters (and perhaps this one) kick our butts.
I imagine it will be highly dilutive. Six times forward four years is over 10 times today, assuming a 15% discount rate. They also don't define "net income" of the entity, is that before/after tax and interest?