PROG Holdings Closes $420M Deal Amid Leverage Scrutiny
The acquisition of Purchasing Power expands the fintech's reach but draws a negative outlook from S&P Global Ratings over increased debt.
PROG Holdings (NYSE: PRG) has finalized its $420 million all-cash acquisition of Purchasing Power, a move that significantly expands its footprint in the consumer finance market but raises concerns over its balance sheet and corporate debt load.
The deal, which closed Tuesday, gives PROG Holdings access to a voluntary employee benefits platform that allows millions of workers to purchase goods and services through payroll deductions. However, the added debt taken on to finance the acquisition had already prompted S&P Global Ratings to revise its outlook on PROG from "stable" to "negative" in December.
Shares of the Draper, Utah-based company were trading down approximately 0.9% at $29.22 in the wake of the announcement, reflecting a mixed investor sentiment that weighs the strategic benefits of the deal against its financial risks. The stock sits in the middle of its 52-week range of $23.19 to $43.63.
From a strategic standpoint, the acquisition provides PROG with a new and valuable channel to consumers. Purchasing Power partners with over 360 employers, offering access to more than 7 million employees. This aligns with the company’s stated goals of expanding financial access.
"This acquisition will strengthen our ability to reach consumers through an employer-based channel and supports our long-standing commitment to improve financial access and inclusion for our customers,” said Steve Michaels, President and CEO of PROG Holdings, in a statement confirming the deal's closure.
The primary concern for investors and ratings agencies is the increase in the company's debt. S&P Global Ratings noted that the transaction would cause PROG's pro-forma adjusted leverage to climb to approximately 3.4x. While the agency affirmed its 'BB-' issuer credit rating, the negative outlook signals a potential for a downgrade if the company fails to reduce its debt burden or if performance deteriorates.
With the deal funded through a combination of cash on hand and debt financing, the company's ability to integrate Purchasing Power smoothly and realize synergies will be critical. PROG Holdings currently has a market capitalization of approximately $1.2 billion.
Analysts remain divided on the company's prospects following the acquisition. Some, like TD Cowen, have maintained a 'Buy' rating with a price target suggesting significant upside, pointing to the long-term benefits of a diversified revenue stream. In contrast, other firms, including BTIG, hold a 'Neutral' rating, reflecting market skepticism about the valuation and the added financial risk. The consensus analyst price target for PRG stands at $40.12.
Investors will now be closely watching PROG Holdings' execution in the coming quarters, focusing on its ability to manage its expanded operations and, most importantly, deliver a clear strategy for deleveraging its balance sheet.