- The parent of Liberty Tax Service has agreed to buy Sears Hometown's Outlet Stores unit in a cash deal valued at $132.9 million, the companies said in a press release and securities filings Tuesday.
- Liberty said it had agreements with lenders for $105 million in debt financing to help fund the purchase. The company would also use some of its own cash and/or cash from private equity firm Vintage Capital Management, which offered to buy Liberty in May.
- The acquisition follows a deal Hometown struck with the reconstituted Sears department store business, which agreed to buy Hometown this summer. That deal allowed the company to continue seeking buyers for the Outlet business.
The companies' press release noted that Liberty's acquisition of Sears Outlet represented an "important step forward in the evolution of Liberty Tax's strategic objectives." Chairman Andrew Laurence said in a statement that the move was a "continuation of Liberty Tax's strategy of identifying and acquiring franchised or franchisable businesses while also building scale at attractive acquisition valuations."
To that end, earlier this month, the tax preparation company — which has been investigated by the Internal Revenue Service and Department of Justice for its practices — agreed to buy supplement retailer The Vitamin Shoppe for $208 million. The month prior, Liberty made a deal to buy Buddy's Home Furnishings business, a rent-to-own retailer with nearly 300 locations.
At the time, Liberty said the Buddy's acquisition was "the first step in a strategic transformation of Liberty Tax. Under the direction of its board of directors (the 'Board'), Liberty Tax intends to evaluate the acquisition of or investment in other franchise-oriented or complementary businesses."
Along with a franchisable model, and the handful of Buddy's stores operated by Sears Outlet, Buddy's and Sears Outlet share a leasing model. While Buddies is primarily a rent-to-own retailer, Sears Outlet has been expanding its lease-to-own business. In the first quarter, which saw the retailer bleed money and sales, its lease-to-own sales were one of the few bright spots, rising nearly 15% year over year. As of May, the company was a franchisee of eight Buddy stores, which Sears Hometown has said came with the benefit of "expertise and systems infrastructure in the rent-to-own business."
Sears department stores (which are owned by former CEO and primary financier Eddie Lampert, who is also Hometown's majority shareholder) have also expanded their lease-to-own offering. In 2018, Sears brought the leasing option to online customers. The financing method requires no credit checks for customers but can add more than 200% to the ticket prices on the longest payment plans, or add 45% to some of the more standard platforms.
The Sears Hometown and Outlet business has suffered of late. In Q1, sales fell nearly 24%, while comps fell about 9% and net loss widened to $7.8 million. The company has acknowledged, as a matter of accounting regulations, that there is "substantial doubt" about its ability to continue as an operating business, or "going concern." The acquisition deals likely helped save it from liquidation.
Correction: A previous version of this story incorrectly stated which units Liberty Tax Service acquired.