Duke Street, the mid-market private equity group, has acquired a controlling interest in the Marlin Group, the leading purchaser and manager of consumer debt specialising in litigation-based recovery.

Marlin, led by founder and Chief Executive Martin Dunphy, represents Duke Street’s sixth transaction – and second purchase – in three months.

Marlin principally acquires debtor books made up of credit card and unsecured personal loan debt. In this asset class, £20.8bn ($31.5 billion) became delinquent in 2009. Creditors outsourced £13.1bn of this to third party collectors, including £2.7bn sold to debt purchasers.

Marlin uses litigation strategies to recover debt in the high-balance segment of the market. Approximately 70% of delinquent debt sold to debt purchasers may be classed as “litigation quality”. Litigation strategies are determined using Marlin’s proprietary database and set of algorithms that enable the evaluation, identification and prioritisation of debtor accounts according to their specific circumstances.

For Marlin, this means a target market of £1.8bn of litigation quality, high-balance debt, with recovery rates suggesting a capacity to generate £680m of revenues for those collecting via a litigation strategy. This level could increase to approximately £850m if other types of creditor, such as Government and auto, were included.

Industry trends make Marlin a compelling acquisition for Duke Street. The level of delinquent debt, especially in unsecured personal lending, has risen much faster by 11% per annum between 2002 and 2008, with 18% growth in 2009. Marlin has grown by 40% over the past three years and Duke Street expects this rate of growth to continue.

Marlin’s legal focus gives it a strong competitive edge against its larger, generalist debt purchaser rivals when bidding for litigation quality books. In addition, Marlin’s pipeline is strengthening: banks are taking more deals to market as they grow confident that debt purchasers have funds to make acquisitions.

The financial services sector is a key area of focus for Duke Street. Last month the group agreed to acquire a 69% shareholding in the Payzone Group, Europe’s largest consumer payments acceptance network, at an Enterprise Value of €104m, as part of the AIM-listed company’s financial restructuring. Previously, Duke Street has owned businesses in the pensions and insurance sectors. One of its earliest successes was building from scratch one of the first and largest European CDO businesses, Duchess, before selling to Mass Mutual.

Since December, Duke Street has sold four portfolio companies to strategic buyers, at multiples of up to 2.8 times. Exits from beauty products group Simple, Pensions Adminstrator Xafinity and hospital operators Affinity and Groupe Proclif, returned €211m to investors.

Commenting on the investment, Duke Street partner Miles Cresswell-Turner said, “Marlin has the potential, with funding and operational help from Duke Street, to become a clear category-killer among litigation-focused debt purchasers. The debt purchase sector is set to recover sharply in the next two to three years, so this investment is an opportunity to build a focused platform with strong upside characteristics.”

About Duke Street
Duke Street is a leading operationally focused European mid-market buyout group with offices in the UK and France. Founded in 1988, it specialises in majority owning English and French companies with a value of up to €300 million, executing many of its deals outside of auctions. It is currently investing its sixth fund across four sectors: healthcare, business services, consumer and financial services. Duke Street has a proven model of value creation by successfully transforming businesses through implementing operational change, buy and build and making nearly 60 build-up acquisitions.

Current Duke Street portfolio companies include: Oasis Healthcare; French lab-testing business, Biomnis; The Original Factory Shop; SandpiperCI; Adelie Food Holdings; Deloro Stellite; Navimo marine accessories; IT services business 2e2 and Payzone.

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