Online used-vehicle retailer Vroom said Tuesday that it has agreed to buy United Auto Credit Corp., a non-prime auto lender, for $300 million in cash.
The move is aimed at speeding up Vroom’s plans to establish its captive financing arm, similar to what rivals Carvana and CarMax use for in-house financing.
UACC, which has some 7,300 dealership customers, will have its operations integrated with Vroom’s existing lineup of lenders, Vroom said in a statement.
UACC top executives CEO Jim Vagim and CFO Ravi Gandhi will remain on board and aid in the integration and deployment of Vroom’s captive finance strategy.
The acquisition is expected to close late this year or early in 2022, subject to typical regulatory and other conditions. The $300 million cash purchase is subject to adjustment based on UACC’s closing book value.
UACC had pretax earnings of $38 million, originations of about $350 million and after-tax return on equity of more than 30 percent for the 12-month period ended June 2021, according to a presentation about the deal.
With the acquisition, UACC is to become an indirect wholly owned subsidiary of Vroom and will continue to operate under its current name.
Vroom’s plan is to integrate UACC in the first half of 2022 and to begin loan originations via the company. In the second half of 2022, Vroom aims to extend its tech platform to enable e-commerce loan originations while transitioning to an integrated captive financing provider. In 2023 and beyond, Vroom looks to expand the integration beyond non-prime lending.
“Competitive financing is a fundamental component of Vroom’s value proposition and adding proprietary lending capabilities unlocks significant value for our business and our customers,” Vroom CEO Paul Hennessy said in Tuesday’s statement.
“We were impressed with the UACC team’s depth of expertise, as well as their commitment to their customers, and are thrilled to have them as part of the team as we advance our lending offering and continue our asset-light approach to scaling our business.”
Shares in Vroom gained 2.5 percent to close at $21.07 on Tuesday.