In an attempt to expand its payday lending business in U.K., Dollar Financial U.K. Ltd., a wholly owned U.K. subsidiary of Dollar Financial Corporation (DLLR) has agreed to acquire Purpose U.K. Holdings Limited for $195 million.

Purpose is a provider of online payday loans, which operates under the brand PaydayUK in U.K. since 2003.

The deal is expected to complete in the next 90 days, which is subjective to closing conditions and regulatory approval. Further, the acquisition of Purpose would immediately add to the earnings of Dollar Financial, which will be reflected in the earnings outlook of 2010 that the company is expected to provide after the closure of the deal.

Besides U.K., the company has expanded its footprint in Mexico too. Dollar Financial is on track acquiring payday lenders outside the U.S., as the company is trying to curb its exposure to U.S. regulations, which targets at limiting the interest rates. The regulation has capped the interest rates on payday loans to 36% to support the low and middle income families.

Apart from acquiring payday lending businesses, Dollar Financial is vigorously pursuing its pawn lending business growth strategy across product and geography, primarily in highly regulated pawn lending markets such as Sweden and Finland.

Recently in December 31, the U.K. subsidiary of Dollar Financial, Dollar Financial U.K. Ltd., completed the acquisition of a leading pawn lending Scandinavian company, Sefina Finance AB, for approximately $73 million in cash. The Sefina acquisition is expected to be accretive immediately and Dollar Financial expects the deal to be reflective in its earnings outlook for 2011.

In April 2010, Dollar Financial acquired Suttons & Robertsons, the fourth-largest pawn-broking business in the UK, for £15 million with additional potential payments amounting to £2.5 million, over the next two years. Further, in August 2010, Dollar Financial agreed to buy Swedish Internet lending business Folkia Group AS for $28 million.

Overall, Dollar Financial has been tapping on this growing opportunity through mergers and acquisitions and we believe that the acquisition of Purpose will strengthen the position of the company as a leading provider of internet loans across U.K.

Moreover, Dollar Financial is expected to benefit from the solid management team of Purpose, along with its strong business and industry expertise, which will facilitate the expansion of the global internet lending platform, both within the U.K. as well as other countries in Europe and Canada.

Though the company is on a business shopping spree, risks related to its tax strategies, increased debt obligation and its increased international dependence continue to float on the surface. Nevertheless, good liquidity, exposure to a somewhat recession-proof sector and cost containment measures will drive growth in the future.

(Editor’s Note: It was earlier stated that Dollar Financial competes with CapitalSource Inc. [CSE] in the payday lender industry. We are re-issuing this blog to correct the mistake.)

 
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