Debt collection industry consolidates
2004 has already been record year for the debt collection industry in terms of mergers and acquisitions. This fragmented, traditionally privately-owned and local business is reacting to the same forces as other service industries.
Paramount is the need for size to serve large customers. As areas like credit card issuing, medical practices, and utility operations get bigger, larger firms are needed to serve the volume and geographical scope of larger clients. (Only the big can serve the big.) And as debt and collection become ever bigger headaches, the industry is growing steadily.
As an article in the Economist ("The Indians are coming", 10/28/04) puts it:
As American households have run up ever-larger debts, and as banks and other lenders have given up collecting their own debts because stricter federal and state regulations have made the business more costly, the collection industry's annual revenues have more than tripled in the past ten years, to $16.5 billion.
A major source of mergers is from a growing breed of companies involved in Business Process Outsourcing (BPO). These BPO firms take over tasks that other companies don't want to handle in house, partly because of lack of expertise and fluctuating demand, but also because they are complex, non-core activities. Typical BPO concerns are customer service, data entry, general accounting, and, increasingly, debt collection. The move into debt collection is a natural one, since it uses the same call center technology.
Overseas expansion is another issue. Outsourcing is a big deal in the credit and collection area, and more and more companies are moving parts of their operations abroad. These include US firms Keane Worldzen and Global Vantedge, but also a number of Indian-owned firms who contract with US firms. According to Mike Ginsburg, a principal of Kaulkin Ginsburg, a firm that enables M&As in this industry:
In the debt collection industry, quite a few agencies and debt buyers are already using off-shore and near-shore solutions to service credit grantors at lower rates. Over the past few years, some agencies have developed joint ventures and other alliances with off-shore service providers.
Much of the offshoring is now going to collect debts under $500, which are too expensive to collect using US personnel. Another issue for offshoring is the difficulty in retaining US workers; high-stress collection jobs have an enormous turnover rate.
Some of the recent moves:
- This year, Sallie Mae, the major provider of student loans bought Arrow Financial Services, a collection debt purchaser and contingency collection agency, In 2002, Sallie Mae had acquired Pioneer Credit Recovery and General Revenue. Sallie Mae is now one of the leading collection agencies in the US.
- West Corporation, a BPO company, bought Worldwide Asset Management, a debt purchasing and contingency collection agency. In 2002, it bought Attention LLC, another debt collection company.
- Covergys, the world leader in call centers, bought Encore Receivable Management, which focuses on bankcard collection, to extend its offerings to banks.
- India's ICICI OneSource, a division of Indian Bank ICICI Group, bought US-based Account Solutions Group. This signals an interesting switch, as the Indian company is supplementing its offshore collections with US offices.
- British BPO firm Vertex, a subsidiary of United Utilities, bought US-based First Revenue Assurance.
- NCO Group, the largest collection company of all, grew that way by acquiring over 20 smaller firms over the last few years. This year, in a reversal of the pattern of BPO firms buying into the industry, it managed to buy RMH Teleservices, a leading customer service calling center. It keeps expanding its BPO offerings.
11:42:58 AM 
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