US Debt Collection giants move into the UK

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Large US Debt Collection firm Encore Capital Group has negotiated a deal to buy a majority stake in Cabot Credit Management (CCM) for £128m, paving the way for their entrance in to the UK’s Debt Purchasing market.

The deal comes weeks after New York buyout house JC Flowers acquired Cabot in an agreement worth an estimated £500m and further highlights growing interest in the market for distressed consumer loans that banks are increasingly willing to shed.

Cabot, which is already a market leader in the UK, is expected to benefit from the scale of Encore’s platform, and gain more access to capital.

Ken Vecchione, Encore’s president and incoming chief executive, said Cabot was “well positioned to bid on the significant backlog of non-performing consumer debt that is likely to come to market in the UK over the coming years”.

On Thursday Encore said it bought a 50.1 per cent stake in Cabot, and has an option to acquire the remaining interest in the company. It had always planned to acquire the stake, but was not ready to announce its intention at the time of the JC Flowers acquisition.

Tim Hanford, managing director of JC Flowers in Europe, said the partnership with Encore had “been the plan from way back”.

“We’ve had a long-term relationship with Encore and we expected to be able to complete this partnership shortly after closing our previous transaction.”

He added the deal would strengthen Cabot’s market position and would “develop the highest capability at the lowest cost in the UK’s consumer debt rehabilitation market”.

Cabot is expected to retain its brand and be run as a separate entity.

Mr Vecchione said that Nasdaq-quoted Encore has been looking for a UK partner for several years. This deal with Cabot follows an earlier acquisition by Encore, with an agreement to buy Asset Acceptance Capital, a US debt collector.

Cabot has bought over 3.5m individual consumer accounts, with a face value of over £7.7bn. Its estimated remaining collection as of March 31 was £934m. Its revenue in 2012 was £161m.

AnaCap, which owned Cabot before JC Flowers bought it, recently said Cabot’s adjusted earnings before interest, tax, depreciation and amortisation was £111m last year, a 23 per cent rise from the previous year.

Neil Clyne, Cabot’s chief executive, said Encore’s “operating advantages” would boost the profitability of Cabot’s investments.

Encore said the transaction is expected to be completed in the third quarter of this year.

The UK’s three largest debt collectors – Cabot, Lowell and Arrow Global – are owned by buyout firms, which have sought to change the debt collection agents into purchasers of loans.

UK lenders have been disposing of souring consumer loans, including defaulted credit card debts, at the fastest pace since before the financial crisis, in order to meet higher regulatory capital requirements.

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