Today, a mezz thread!

Also, the answer to a few questions including:

Yesterday’s Value That Company!
Also, Why am I so dumb?
Finally, Why listen to me? 🤷‍♂️

Here we go!

A few years ago, I get a call from an acquaintance (we have several mutual good friends). He’s running a fast growing consumer finance company and needs cash...

It isn’t “I need $5 Million by Friday” but it’s close...
How fast are they growing? By the time we are negotiating the deal a week or 10 day later, the ask is up to $10 Million...
We did a little time travel yesterday on Value That Company, and I put you back in my shoes 3 years ago...

(Answer shortly)... https://t.co/mNFNGgHiMI
The business is fascinating, but also extremely sensitive to assumptions, underwriting, etc...

Management is good, but also very aggressive which I’m not sure I love...

Worse, we don’t have the time to really dig into the numbers as extensively as I’d like... https://t.co/np5UPBmjnu
Value That Company Answer:

I get comfortable enough with the numbers to estimate the company is worth at least $100 Million ...

Will I lend $10 Million (this was a big deal so I partnered with some friends) into $100 M equity value? Sure

Then the CEO asked if I’d do equity?
I politely decline, and go close the mezz deal ...

The company continues growing, and refinances me out within a year.

I get a 36.9% IRR ... a good deal all the way around.
But, oh wait, there is more! Turns out Matt is an idiot for not taking equity.

Yesterday, @IrishCapMGMT correctly identified the company on everyone’s favorite valuation game.

The company just sold for $1.65 Billion less than 3 years later... https://t.co/trYKMEJaJB
Based on these deal metrics, the correct valuation when I was looking at it was $88-200 Million (basically where I was)... take a midpoint of $150 Million and I could have done a 10x in less than 3 years
So, do I feel bad? Maybe, but I’d make the exact same decision again. Here are a few reasons:

1) Circle of Competence/Discipline - This deal was a success for me because I stayed disciplined within what I know. I don’t like/try to avoid risks I don’t understand
2) An honest congratulations to all involved (I have at least 3 friends and a former next door neighbor in the equity) ...

Why should their success diminish mine?
3) I believe there is still risk in this business that I don’t understand. The unit economics make no sense for the borrower (I’ve told my children to NEVER finance something in the store). Will a new administration/CFPB care?

IDK, but I’m unwilling to take the risk...
4) I haven’t looked at the financials for Rent-A-Center but I actually think this is a good deal for them. It’s a way to modernize their business while staying within their competence...

(I won’t be investing, though - see #1)
Final) Thank You for following along as I take this Twitter journey. I confess that I love it!
@threadreaderapp unroll

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Last week Hizbollah's finance institution Al Qard el Hasan was hacked by Spiderz. A group of people took that Data and tried to make sense out of it. Below are the findings

https://t.co/eGLqvb28o5


Loans are provided to borrowers for gold deposits or other guarantees, to the association's members and to unsecured applicants.

AQAH had a carried forward loan balance of $450 million as of December 31, 2019. This balance has been increasing at a yearly rate of 13.4%.


AQAH laundered around $475 million in 2019 in the form of disbursed loans paid to more than 20,000 borrower accounts; mostly to borrowers with gold deposits.

Deposits accounts have been offered to 307,000 members of the association, 83,000 contributors as well as to 600 companies. AQAH closed 2019 with an overall depositors accounts balance of around $500 million.

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