In one of the largest acquisitions in accounts receivable management industry history, Norfolk, Va.-based Portfolio Recovery Associates (NASDAQ: PRAA) announced late Wednesday that it will buy Oslo, Norway-based debt buyer Aktiv Kapital, a company that specializes in accounts from Europe and Canada.

The consideration paid in the deal will be $880 million plus the assumption of $435 million in corporate debt, making the total transaction value more than $1.3 billion. PRA is expected to finance this transaction with a combination of cash; $170 million of seller financing; $435 million from the company’s domestic, revolving credit facility; and by accessing an accordion feature on its credit facility of up to $214 million.

The transaction is expected to close in the second quarter.

“This will be a transformative transaction for PRA, expected to be immediately accretive to earnings,” said Steve Fredrickson, chairman, president and chief executive officer, PRA. ”In Aktiv Kapital, PRA has found a true partner, an international acquirer of consumer debt with a conservative balance sheet, a deep and diverse data set, and remarkable analytical and operating capabilities.”

Aktiv’s Chief Executive Officer, Geir Olsen, his executive team, and the more than 400 Aktiv employees will join PRA upon the close of the transaction. Akitv is active in 15 countries, and uses a blended in-house/outsourced collection model to recover on accounts in its portfolio.

The largest office is in the UK with 118 employees. Aktiv also has collection offices in several major European countries with 64 in Spain, 45 in Austria, and 33 in Germany. Its Canadian office houses 50 employees in London, Ontario.

Diversifying in a Tricky ARM Environment

Aktiv’s geographic diversity is what made the acquisition so attractive to PRA, according to Mike Ginsberg, CEO of ARM advisory firm Kaulkin Ginsberg.

“We’ve seen a lot of diversification deals in the ARM industry lately, especially among debt buyers,” said Ginsberg. “Buying out a company with such mature footholds in new markets is a great move for PRA.”

Portfolio Recovery has been diversifying its business for several years. The company built out a fee-for-service unit, mostly focused on government revenue services, through a string of acquisitions beginning in 2005. The company offers other fee-based services through PRA Location Services and Claims Compensation Bureau.

But the debt buying giant has also diversified geographically in its core business: debt buying and collecting. Two years ago, it acquired Mackenzie Hall Holdings, a UK debt collection and purchase group with an office in Scotland. Earlier this month, PRA announced that it had acquired a UK bankruptcy servicing platform.

The uncertain and rapidly shifting regulatory environment in the United States makes entry into other markets especially attractive. And the maturity of Aktiv’s markets demanded a premium purchase price. The company has long-standing relationships with many of the creditors with whom it does business.

“Many of Aktiv Kapital’s clients are repeat sellers,” said Aktiv’s CEO Geir Olsen. ”They have carried out extensive due-diligence on our operations in order to assure that their customers will be treated professionally once we have acquired their debts.”

A Monster Deal for the Industry

With a total value north of $1.3 billion, the acquisition is among the largest ever for the debt collection industry.

“It’s certainly the largest merger among debt buyers,” said Ginsberg. He noted that it might not get the top spot due to the transaction that saw NCO Group go private.

That deal, in which private equity-backed management bought out shareholders, was publicly valued at around $1.2 billion in 2006. But Ginsberg notes that the value may have ended up higher. There are also previous similar deals in which units were spun off and those that involved private equity investments that may have been slightly larger.

“It doesn’t really matter,” noted Ginsberg. “This is a monster deal, certainly among the top five ever.”

Deutsche Bank Securities Inc. advised PRA in the deal with William Blair advising Aktiv.

Portfolio Recovery Earnings for 2013

What is not in doubt is the sheer size of PRA once Aktiv is fully integrated. PRA underscored this point with its earnings report from 2013, released simultaneous to the deal announcement.

For the full year 2013, PRA reported net income of $175.3 million, up 38 percent from 2012. Total revenues for the year were $735.1 million, an increase of 24 percent. Driving that revenue was record cash collections of $1.1 billion, 26 percent higher than in 2012. The company also grew its workforce 10 percent in the year to more than 3,500.

Aktiv will add significant numbers to PRA’s financials. In 2013, the company recorded $318 million in cash collections on owned portfolios. Its cash collections total has increased an average of 11 percent over the past three years.

The acquisition will put Portfolio Recovery Associates on track to record $1 billion in annual revenue in the very near future.


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