Two big takeover deals involving well-known debt collection firms in the past month caught my eye.
First, the company described by the Financial Times as Britain’s largest debt collector, Cabot Credit Management, which is controlled by American debt recovery group Encore and New York buyout house JC Flowers, bought its smaller UK rival Marlin Financial.
Marlin and its £2 billion worth of loans were bought from private equity group Duke Street for £295m including debt.
Second, another US group, Portfolio Recovery Associates, said it would buy Aktiv Kapital of Norway for some $880 million to expand in Europe, including the UK.
This deal will create what the financial newswire Reuters said will be one of the world’s largest acquirers of non-performing consumer debt from banks and other creditors, with more than $4.6 billion in estimated remaining collections from customers. That’s bad debt to you and me.
So why would you buy bad debt? Well, the UK banks are under orders to meet tougher capital requirements under tighter regulations introduced after the 2008 crash. So they are willing to sell off debt quite cheaply to investors, who then pocket whatever they can recover. Anything over and above what they paid for the debt, plus the costs of running a call centre and the occasional bailiff to manage the flow of repayments is profit.
It means that the banks can write-off the debt that is uneconomic to pursue. At the stroke of a pen, they look more profitable even if the debt has been sold at a big discount.
Or as the founder of Marlin, Martin Dunphy, told the FT: ‘Marlin continues to be a key part of the UK’s credit value chain helping both banks to free up capital and people to take responsible action to return to creditworthiness.’
Creditworthiness is the side of the equation often forgotten when people are advised, whether by companies charging a fee or by people in online forums, that they do not have to repay certain debts because they are unenforceable in law.
Without going into detail, I can only suggest that consumers consult Citizen’s Advice or one of the debt charities such as Step Change if they have money worries. Then, you can have genuine help to repair your credit rating.
And if you are a company with a growing pile of unpaid accounts, can I suggest that you seek out SJ Collections for debt recovery with a personal touch. We’re not likely to catch the eye of private equity financiers seeking the next big deal, but we do offer a ‘no collection, no fee’ service that our customers have shown they appreciate.