Encore Capital Group, Inc.
) completed the purchase of 50.1% equity stake in Janus Holdings
Luxembourg S.a.r.l., an indirect holding company of Cabot Credit
Management (CCM). The final consideration of the deal was £115
million ($177 million). The purchase consideration was curtailed
from £128 million ($193 million) as announced on May 30, 2013,
when Encore Capital initially announced the acquisition.
The change in the purchase consideration was due to an
agreement signed by J. C. Flowers & Co. for the redemption of
some bridge preferred equity certificates. A fund advised by J.C.
Flowers holds the remaining 49.9% equity of Janus. Encore Capital
holds the option to buy the complete equity stake of Janus
between the fourth and sixth anniversary of the acquisition.
The reduction in the purchase consideration has made the deal
more attractive for Encore Capital as it is getting better
internal rate of return from the transaction. The company will
use its revolving credit facility to finance the remaining part
of the purchase consideration.
Encore Capital raised $150 million for the acquisition through
the issue of 7-year, 3% convertible notes last week. As per the
agreement, CCM will continue to be an individual unit and conduct
its operations independently. CCM will hold on to the present
workforce and brand name.
The deal is aimed at bringing together the U.S and UK market
leaders, Encore Capital and J. C. Flowers, respectively to build
a global leader in the debt management market. UK represents the
second largest mature debt purchase market in the world and is
thus loaded with growth opportunities. Encore Capital has been
trying to grab this opportunity and profitably deploy capital in
this promising market, which has grown since 2009.
CCM's strong management, efficient operations, strong
relationship with financial institutions and steady growth levels
for the past 14 years persuaded Encore Capital to realize their
objectives. The operating advantages of CCM are expected to
leverage the prosperity of Encore Capital by rendering the
existing investments all the more profitable.
Through its specialist businesses, CCM purchases and executes
contingency collections and customer tracing. On culmination of
the deal, CCM will be exposed to more capital enabling it to
purchase more debt and engage in other asset categories.
Additionally, greater exposure to resources and expertise from
Encore Capital will enhance its operational performance. In the
first quarter of 2013, revenues of CCM increased 12% year over
year to £42 million or $63.8 million. Revenues are expected to
increase further on the back of its alliance with Encore
As Encore Capital will now own 50.1% stake in CCM, this
improvement in CCM's operations is expected to fortify Encore
Capital's operating performance and thereby bolster growth going
forward. The Zacks Consensus Estimate for full year 2013 is
currently pegged at $3.59, translating into a year-over-year
improvement of 17.6%.
Encore Capital currently carries a Zacks Rank #3 (Hold). Other
companies in the financial sector, which look promising at
Discover Financial Services
Regional Management Corp.
World Acceptance Corp.
). All these companies carry a Zacks Rank #2 (Buy).
DISCOVER FIN SV (DFS): Free Stock Analysis
ENCORE CAP GRP (ECPG): Free Stock Analysis
REGIONAL MANAGE (RM): Free Stock Analysis
WORLD ACCEPTANC (WRLD): Free Stock Analysis
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