Equity Firm Prospect Capital to Buy Nicholas Financial for $326 Million

Months after Nicholas Financial first revealed it had a suitor, N.Y.-based Prospect Capital Corp. came forward today saying it will buy the Clearwater, Fla.-based subprime lender. The price tag: $326 million.

Specifically, Prospect Capital entered into a definitive agreement to acquire Nicholas’s common stock for $199 million ― $16 per share ― and to assume its outstanding debt, which totals $127 million. That means the transaction valued Nicholas at 10.25 times its pre-tax income as of the end of last quarter.

The transaction is currently ‘contemplated’ to close in April, depending on the requisite approvals. Nicholas’s board voted to recommend the transaction to the security holders at Nicholas.

Upon closing the transaction, Prospect intends to refinance the business using proceeds from a newly committed three-year, $250 million revolving credit facility from Bank of America and Wells Fargo, along with an operating term loan that Prospect will provide.

After the recapitalization, Prospect will have a net investment in the transaction of approximately $139 million. The investment firm expects Nicholas to pay out substantially all its income to Prospect on an ongoing basis

For the trailing twelve months ending Sept. 30, Nicholas (ticker: NICK) generated pre-tax income of $31.8 million. As of midyear, it had 65 branches in 15 Southeastern and Midwestern states. The publicly traded company originated $42.0 million of indirect loans in the third quarter, up 6.9% from $39.2 million in 3Q12.