NCUA Paved the Way for Kinecta's Nix Acquisiton
Tom Nix, founder of Nix Check Cashing, credited the NCUA in his latest book for the successful sale of his business to the $3.1 billion Kinecta Federal Credit Union after failed attempts to sell the company to banks.
Nix detailed his experiences with Nix Check Cashing, the largest checking cashing chain in Southern California, in the book, “Nixland: My Wild Ride in the Inner City Check Cashing Industry.”
Despite armed robberies, the L.A. riots and threats from the Chicago mob, Nix expanded the business to approximately 400,000 customer transactions per month and 55 locations.
“There’s a real need for convenient banking services in these underserved communities. The only way to really make it happen is to create a profitable model for them. If you have an unprofitable business model, you’re not going to be able to expand it. The NCUA realized you can open all of the credit unions you want in the inner city but no one is coming in there because it doesn’t send a message that it’s available to people,” Nix told CU Times.
“The notion is a credit union is typically designed for employees of a company – that’s basically how it’s been until they created these new ways to do business with them. So, it was natural to put a credit union inside a check cashing facility and create that full spectrum of choice for consumers,” he added.
In March of 2004, Nix said he was excited to open a new Union Bank branch with a Nix Check Cashing and Operation Hope, a nonprofit banking organization, in the same building.
According to its official website, Operation Hope has served more than 2 million individuals since 1992 and directed more than $1.5 billion in private capital to America's low-wealth communities.
“We were 100% inspired to launch this new business model. This new hybrid branch would change the world for underserved communities,” Nix wrote.
“We were becoming part of the fabric of Union Bank and would undoubtedly be a division of the bank soon. Or so we thought,” he added.
Later in the same month, the Office of the Comptroller of Currency refused to grant permission for Union Bank to purchase Nix Check Cashing.
“The OCC’s decision ensured that no bank would ever duplicate the experience Union Bank had with Nix Check Cashing, and made it harder for people in these communities to access traditional banking services and begin moving up the financial ladder,” Nix wrote in the book. “It was a crying shame! We could have changed America, and it was terribly disappointing to have been refused the opportunity to do so.”
Nix shifted his strategy and decided to approach a wide number of interested parties from private equity firms to strategic buyers about purchasing Nix Check Cashing.
“Our objective was to achieve the highest price with the best fit,” he said.
Nix recalled having many interested buyers, including a Hispanic-market targeted bank that was still in the process of its formation.
“The initial valuations from them and the other buyers were quite low; the ‘fit’ was better, but the price was not. So then we placed our marketing efforts on strategic buyers, mostly financial institutions,” he wrote.
However, most of the institutions ended up not being interested, mainly due to the regulatory concerns we encountered in our dealings with Union Bank, Nix said.
He told CU Times he was surprised to find a regulated industry that was willing to move forward after his experience with Union Bank.
On June 17, 2007, Paul Irving, a member of Operation Hope’s Board of Directors, suggested that Nix speak with Kinecta Federal Credit Union in Manhattan Beach, Calif.
Irving said Kinecta’s CEO at the time, Simone Lagomarsino, told him the NCUA was encouraging credit unions to begin providing services in low-income communities, and the Kinecta Board of Directors wanted to buy a check cashing company as a way to penetrate the underserved market.
According to Irving, Lagomarsino knew all about Nix Check Cashing, but was unaware the business was for sale.
Nix met with Kinecta executives on June 21, 2007 and came away with the impression the two were a perfect fit.
Kinecta approached the NCUA and received a “verbal green light” for the purchase, according to Nix.
“Finally, on July 11, 2007, Kinecta agreed to pay $45 million for Nix Check Cashing, a price far above what I had hoped for,” Nix wrote. “Kinecta’s purchase of Nix was the first significant acquisition of a check cashier by a credit union. It was thrilling.”
“That was definitely a fair price, because we had other bidders but they were industry players. I didn’t really want to sell to another check cashing firm after being in business for 42 years, because that’s a consolidation model. They come in and they fire all of my main office people because they have a main office,” Nix told CU Times.
“They can pay a good price for it because they’re going to reduce costs like crazy. I felt we had a much different type of operation than most of the check cashing companies because we were so focused on being an integral part of the community, and I certainly didn’t want to have a bunch of my employees terminated after being with me for many years and helping me grow the business.”