Encore Capital Group Inc.
) entered into an agreement to acquire 50.1% stake in Cabot
Credit Management (:CCM) to expand its global footprint in the
debt purchase and recovery market. Ireland based CCM is
responsible for managing consumer debt and is held by J.C.
Flowers & Co. LLC (J.C. Flowers & Co.).
The purchase consideration equates to £128 million or
approximately $192 million. The deal is expected to culminate in
the third quarter of 2013. The transaction permits Encore to
acquire the remaining 49.9% stake of Cabot Credit Management
during four to six years from the closing of acquisition.
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 associating the U.S and U.K market leaders,
Encore and J. C. Flowers respectively to build a global leader in
the debt management market.
The U.K. represents the second largest mature debt purchase
market in the world and is thus loaded with growth opportunities.
Encore has been trying to grab this opportunity and profitably
deploy capital in this promising market which has grown since
CCM's strong management team, efficient operations, strong
relationship with financial institutions and steady growth levels
for the past 14 years has persuaded Encore to realize their
objectives. The operating advantages of CCM are expected to
leverage the prosperity of Encore 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 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 will now own 50.1% stake in CCM, this improvement in
CCM's operations is expected to fortify Encore's operating
performance and thereby bolster company growth going forward. The
Zacks Consensus Estimate for full year 2013 is currently pegged
at $3.58, translating into a year-over-year improvement of
Encore currently carries a Zacks Rank #3 (Hold). Among others in
Credit Acceptance Corp.
Discover Financial Services
Regional Management Corp.
) carry a favorable Zacks Rank #2 (Buy) and are worth
CREDIT ACCEPT (CACC): Free Stock Analysis
DISCOVER FIN SV (DFS): Free Stock Analysis
ENCORE CAP GRP (ECPG): Free Stock Analysis
REGIONAL MANAGE (RM): Free Stock Analysis
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