A Dallas company led by auto finance veteran Samuel Ellis is offering to buy out a California firm that specializes in subprime auto loans for $135 million.
Auto Experience Inc., which Ellis formed in 2018, said it made the all-cash bid in a letter to the board of directors of Consumer Portfolio Services Inc. after trading markets closed Wednesday. Its offer amounts to $6.18 a share — an 84% premium over where the Nasdaq-listed company’s stock ended Wednesday.
The suitor gave CPS until Oct. 30 to respond.
Based in Irvine, Calif., CPS works with auto dealers to buy and service consumer loans, funding its purchases primarily through securitization markets. About 75% of its business is financing used car sales, and its customers often have limited credit histories or past credit problems.
The 834-employee company posted revenue of $346 million last year, with $5.4 million in profit. It has recorded 28 straight quarters of pre-tax profit, according to a company investor presentation.
Auto Experience brings proprietary technology and an experienced leadership team to the table, creating “a strong national player that already has a toe-hold in more than 8,000 automobile dealerships across the U.S.,” Ellis said.
Ellis previously founded and led Dallas-based DriverUp, an online auto finance marketplace. He said technology from that venture would dramatically improve CPS’ customer buying experience, replacing the laborious signing of loan documents with a fully online application, and aid dealers in selling vehicles on their lots faster.
“We want this to be exciting and fun,” he said.
Funding for the deal comes from Ellis’ personal investment, as well as backing from institutional investors, he said.
CPS, founded in 1991, has bought nearly $17 billion in contracts from its inception through June 30. Its managed portfolio totaled $2.3 billion and 173,000 customers at mid-year. California, Ohio, North Carolina and Texas are its biggest markets.
Its typical customer is 42 years old with a household income of $57,355, according to the investor presentation. Its average loan is $17,965, financed over 68 months.
“We serve as an alternative source of financing for dealers, facilitating sales to customers who otherwise might not be able to obtain financing from traditional sources,” the company said in a regulatory filing.
CPS’ business took a hit in April, May and June from the COVID-19 pandemic, according to the investor presentation and a transcript of the company’s July earnings conference call. Its revenue fell 22% from the same period last year and CPS reduced its workforce by 11%.
Auto loans are the second-largest consumer finance market in the U.S. and Dallas-Fort Worth is a major hub for lenders. Capital One’s auto loan division, Santander Consumer USA, Exeter Finance and GM Financial are all headquartered in the region.
Ellis founded Exeter and was an executive at GM Financial for nearly a decade.