Takeovers are a fact of business. They’re sometimes good for the customers of the companies involved, sometimes less so, but business never stands still. Debt collection is no exception, although it tends not to get the media attention given to media, engineering or major retail companies, and two significant takeovers have recently been announced in the sector.
Two Recent Takeovers
Cabot Credit Management, controlled by American debt recovery group Encore and the New York buyout house JC Flowers, has been described as the largest debt collector in the UK. Cabot has expanded even further by buying its rival Marlin Financial from private equity group Duke Street for £295m. This includes the company’s debts, and for this Cabot gain Marlin’s £2bn of loans.
At the same time, Portfolio Recover Association, from the US, is buying Norwegian company Aktiv Kapital for $880m. Reuters estimates this will create one of the world’s largest acquirers of non-performing consumer debt. Portfolio intends to use its Norwegian acquisition to expand in Europe, including the UK.
Buying Bad Debt
It might seem counter-intuitive that buying bad debt could be a good business deal, but actually the current economic climate makes it just that. Banking regulations introduced after the 2008 crash mean that banks have to meet tougher capital requirements, and that includes being able to write off debt they can’t afford to pursue.
This is good both for the bank and for the collection companies. The banks are able to appear more profitable, while the companies get the debt at a large discount. Even if they can’t recover all of it, there’s a good chance of making a profit over what they’ve paid plus costs such as running a call centre.
According to Martin Dunphy, founder of Marlin, “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.”
People are often advised, either by professionals or in online forums, that some of their debts may be unenforceable so they don’t have to worry. Even if a debt isn’t enforceable by law, though, failing to pay it may affect your creditworthiness, which could affect anything from applying for a mortgage to taking out business loans.
Whether you owe money or you’re owed, you’re very welcome to give me a call and talk it over. If I can’t help you myself, I can probably point you in the direction of someone who can.