Europe’s Biggest Debt Collector Cranks Up Acquisition Ambitions

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The biggest debt collector in Europe, Intrum Justitia AB, is getting closer to its first expansion into new markets in 13 years and may look outside Europe as it sees scope to spend at least 6 billion kronor ($730 million).

Lars Wollung, the company’s chief executive officer, says he sees “such attractive expansion opportunities” in Intrum’s current markets. So “right now it feels more important to focus on those than to enter new countries.” But the company is “approaching the point when we will expand outside our existing markets,” either in Europe or elsewhere, he said.

In a May 13 interview in Stockholm, Wollung laid out his company’s plans for growing through purchases of debt portfolios and credit-management companies and for raising a debt-to-earnings ratio he says is currently too low.

As record central bank stimulus across most of the developed world fuels debt levels, Intrum sees abundant growth opportunities for its business. Tapping new markets would reverse a strategy it followed until just a few years ago. Between 2005 and 2012, the company had mainly focused on exiting markets, including the U.K., Lithuania and Latvia. Today, it has operations in 19 countries across Europe.

For acquisitions to work, “the most important thing is that it’s societies where it’s possible to achieve efficient credit provision and credit management and where our business model will work,” Wollung said.

Seeking Debt

Intrum’s optimal target for consolidated net debt relative to earnings before depreciation, amortization and impairments would be somewhere between 2 and 3, according to Wollung.

It’s “a positive problem, but we have a debt level that’s too low in relation to what’s reasonable for what we believe is an optimal capital structure,” Wollung said. “We aim to reach 2 within a not too distant future and definitely before the end of this year.”

Intrum’s top investment goal is to buy debt portfolios, “but we are very stubborn when it comes to pricing, so the volumes vary and we’re not protecting any market position,” Wollung said. After that, the company is focused on buying credit-management companies, he said. If it can’t optimize its debt level well enough through those two models, it plans to “buy back shares as a complement to reach a sensible capital structure,” he said.

Bitter End

Intrum plans to buy two smaller companies a year, on average, over the coming five years, according to Wollung. Cost synergies in the industry “are very large,” meaning that even acquisitions of small companies will result in “a noticeable improvement of our net income,” he said.

Of the 6 billion-kronor, at least, that Intrum could spend on acquisitions, between 3 billion kronor and 5 billion kronor are from bank loans and potential new bond funding. The company also had about 2.7 billion kronor in cash in 2014.

“Capital is not the problem -- the challenge is to get companies to sell more debt portfolios,” Wollung said. “Our biggest competitor is the clients themselves as they still sit with most of the receivables written off or written down. We need to get better at communicating the benefits of selling receivables and not just holding on to them until the bitter end.”