Europe's Largest Debt Collector to Increase Pace of Acquisitionsby
Intrum Justitia AB plans to step up the pace of acquisitions as it aims to increase its presence in credit management services in coming years, according to acting Chief Executive Officer Erik Forsberg.
Europe’s largest debt collector now wants to do “at least two, or more, acquisitions, on average over a few years,” Forsberg said in his first full interview since taking the helm from Lars Wollung on Nov. 2. In May, Wollung had set the takeover target at two smaller companies a year, on average, over five years.
“The ambition is clear: we should in comparison to the last few years improve our acquisition pace for small and mid-sized CMS companies,” Forsberg said at Intrum’s headquarters in Stockholm. “Preferably we’d like to do many smaller acquisitions, simply because that reduces risks.”
The company’s own analysis shows that about one-third of European businesses saw their survival at risk as recently as 2013 because of problems with debt collection. That year, companies in the region wrote down about 350 billion euros ($382 billion) in unpaid invoices. Against that backdrop, demand for debt collection services is growing.
Intrum’s board discharged Wollung last month amid “differing views on the future course for the company.” Its recruitment process is “focused on the earliest possible appointment of a permanent CEO.” Under Wollung, Intrum’s share price more than quadrupled. Forsberg said the change in management won’t alter the company’s direction.
After trading down earlier in the day, Intrum Justitia shares jumped as much as 0.7 percent in Stockholm after Forsberg’s comments. The shares were little changed at 280.8 kronor as of 10:26 a.m. local time.
Intrum will grow by continuing to purchase debt and expanding its CMS business, both organically and through acquisitions, Forsberg said. It has some 3 billion kronor ($353 million) in credit facilities it can use for deals. The company can also raise additional funds in the bond market, he said. Intrum is interested in buying companies with annual revenue as high as 250 million kronor, or an equivalent enterprise value, Forsberg said. It would consider deals in all its 20 markets, he said.
Since 2013, Intrum has targeted annual growth in earnings per share of more than 10 percent, which Forsberg said is “certainly still a valid goal that we aim to achieve in 2016 and 2017, etc.” That’s despite a slowdown in the third quarter, when EPS grew by only 10 percent, compared with 36 percent in the second quarter and 39 percent in the first.
While some corners of the purchased debt market have become more competitive, making the environment “a bit more challenging,” Intrum is still “comfortable with reaching our financial targets -- we are very committed to reaching the 10 percent EPS growth,” Forsberg said.
The company’s other key target -- consolidated net debt relative to earnings before depreciation, amortization and impairments of somewhere between 2 and 3 -- also remains in place, Forsberg said. While it reached 2.0 in the second quarter, it fell to 1.8 in the third quarter.
“We are very close, and then if we end up at 2.1 or 1.9 going forward is not extremely important -- we want to be at least around the 2.0 mark,” Forsberg said. “Then as we see good investment opportunities in the years to come, I think for us it is not a necessity to go a lot above 2.0, but we can be in the lower range to allow us to have good financial flexibility to go up when we see investment opportunities.”