Aaron’s aims to decide its own destiny
By Maria Saporta
Published in the Atlanta Business Chronicle on April 18, 2014
While Aaron’s Inc. has been fending off an unsolicited takeover offer from the Florida-based private equity firm Vintage Capital Management LLC, the Atlanta-based rent-to-own retailer has been putting the pieces in place to grow the company from within.
On the morning of April 15, Aaron’s CEO Ronald W. Allen made multiple announcements to show that the company was following its own strategic game plan to keep it growing as an independent company.
Allen and Aaron’s leadership team sat down with Atlanta Business Chronicle on April 15 for a 45-minute interview to explain the company’s three-prong strategy to decide its own destiny, to strengthen its executive ranks and to bolster its corporate governance practices.
First, Allen announced that the board had approved a $700 million acquisition of Utah-based Progressive Finance Holdings, a provider of virtual lease-to-own programs that currently serves 5,500 retail partners with about 15,000 locations across the United States. Its merchant partners include Mattress Firm, Big Lots, Art Van Furniture and Sleepy’s.
The second move may prove to be even more significant in the long term.
The board and Allen, 72, have begun to identify the next generation of executives who stand a good chance of leading the company in the not-too-distant future. Two executives to watch are Steve Michaels, 42, who was named the new president of Aaron’s on April 15, and John Robinson, CEO of Progressive, which will operate as a subsidiary of Aaron’s. Robinson, who is also 42, will continue serving as Progressive’s CEO as well as an executive vice president of Aaron’s.
The third move announced by Aaron’s on the same day was the board’s decision to adopt several corporate governance changes to make the company operate more in concert with accepted standards.
For example, Allen will no longer hold three titles at Aaron’s – those of chairman, CEO and president. Instead, Ray Robinson, a retired AT&T Inc. executive who had been the lead outside director, will now become the board chairman. Allen will remain as CEO and Steve Michaels will serve as the new president of Aaron’s.
The management moves are the first indication that Allen is building a team of executives who can lead the company before and after he retires.
Aaron’s was founded by R. Charles Loudermilk in 1955, and he remained a force with the company for 57 years until he retired as its chairman in August 2012 at the age of 85.
By then, Allen, a longtime member of Aaron’s board, had been named the company’s interim CEO. A few months later, he was named the permanent CEO.
One of the first weaknesses Allen noticed within the management structure was a lack of “bench strength.”
Loudermilk and his son, Robin Loudermilk, as well as other executives, had a “very lean management group,” which for Allen meant that there was a scarcity of next-generation executives being groomed for more senior positions in what was becoming a more complex business organization.
“We had an opportunity to move some people in some key positions,” Allen said. “I thought Steve Michaels was kind of hidden. He was instrumental in our planning process, and now he’s got to implement it.”
Michaels joined Aaron’s in Texas in 1995, moving to the company’s Atlanta headquarters two years later.
“I’ve grown with the company and have had a lot of different roles,” Michaels said. “I was fortunate enough to be with the company when it was growing so fast. It was a great training ground for me. That was a fun time, and we got a lot thrown on our desks. You did what needed to get done. I got to see everything and do everything.”
By the time Allen became CEO, Michaels said, Aaron’s had outgrown the company’s long-standing organizational model. So Michaels transitioned from his role as vice president of finance to leading the strategic planning process for the company’s next phase of growth. “We had to play a little catch-up,” Michaels said.
When Allen took the CEO role at Aaron’s, both he and the board knew his top priority was to help find a successor and build a strong management bench.
“Right now we have got a good solid team in place for our management roles,” Allen said. “But I’m still worried about the depth with where we are today.”
The acquisition of Progressive Finance has helped. Progressive’s CEO, John Robinson, has now joined Aaron’s senior team. A native of Winder, Ga., Robinson said Progressive had sought a partnership with Aaron’s because of its industry reputation. The partnership talks soon evolved into an acquisition deal.
“The more we learned about Progressive, it was almost too good to be true,” Allen said.
When asked about what impact Vintage’s unsolicited bid has had on their negotiations, Progressive’s Robinson described it as frustrating because they could not talk about the deal to counter their critics.
“I was impressed with [Aaron’s executives’] ability to stay focused,” Robinson said. “There definitely were a lot of distractions.”
Meanwhile, Allen was rebuilding Aaron’s executive team by putting together the next tier of leadership.
“Steve was ready to take on this role,” Allen said. “The timing just felt right. He is well-respected throughout the company. He worked for a long time directly with our franchisees.”
Asked if Michaels could be considered his eventual successor, Allen said, “We will continue to look for CEO candidates. We have two candidates in this room,” referring to Michaels and John Robinson.
Aaron’s newly named chairman, Ray Robinson (who is no relation to John Robinson), agreed. “It’s obvious that Steve and John are the right age. We just haven’t talked about it as a board.”
But Ray Robinson said the board has been busy reviewing and adopting corporate governance changes that are more in line with current business practices. Today seven of the eight directors are outside, independent directors.
For Allen, his tenure at Aaron’s likely will be his last hurrah in the business world, and one senses that he wants to get it right. As the former CEO of Delta Air Lines Inc., Allen’s tenure at his beloved airline ended with a rather rough landing, one he would rather not repeat at Aaron’s.
But Allen also recognizes that his time at Aaron’s has not been trouble-free.
“I was honored when Charlie [Loudermilk] asked me in November 2011 to do this on an interim basis and then as permanent CEO in February 2012,” Allen said. “There have been challenges. We have made a lot of changes that weren’t necessarily popular at the time.” In the interview, Aaron’s executives expressed relief to finally be able to talk freely about where they’re headed and to offer a rebuttal to Vintage’s unsolicited bid.
As the interview came to a close, Aaron’s executives prepared to go on a multi-day road show to let investors, shareholders and franchisees know about the company’s strategies for the future.
A recent timeline at Aaron’s inc.
Jan. 13 Aaron’s announces it’s reducing its earnings expectations for the fourth quarter of 2013, blaming it on “a difficult economic environment for our low to middle income customers.” “We will be re-focusing on all aspects of the company’s operations and will take appropriate actions to improve financial performance,” CEO Ron Allen says in a statement.
Feb. 7 Aaron’s reports that its annual profit in 2013 fell 30 percent. “2013 has been a year of challenges and change for Aaron’s and growing revenues and adding customers has been difficult with the ongoing economic pressures on low to middle income consumers,” CEO Ron Allen says in a statement.
Feb. 7 The same day, Aaron’s receives an unsolicited $2.3 billion buyout offer from Florida investment firm Vintage Capital Management Inc., which has acquired a 10 percent stake in Aaron’s.
Feb. 24 Aaron’s says it will review and evaluate Vintage’s offer.
Feb. 28 Vintage says in a letter to Aaron’s board that “we believe strongly that immediate and decisive action is required to reverse the ongoing customer attrition and overall decline of Aaron’s business.”
March 7 Vintage Capital nominates five potential members for Aaron’s nine-member board.
April 14 Aaron’s files a federal lawsuit against Vintage Capital.
April 15 Aaron’s announces it will buy Progressive Finance for $700 million. The company also officially rejects Vintage Capital’s offer. And it announces that its sales and earnings for the first quarter were lower than expected, which Aaron’s blames on the economy and winter weather.