Publicly traded debt buyer Encore Capital Group, Inc. (NASDAQ: ECPG) announced Wednesday that it is acquiring rival debt purchaser Asset Acceptance Capital Corp. (NASDAQ: AACC) in a deal valued at $200 million.
San Diego-based Encore said in a statement that the combined company will have purchased over 60 million individual consumer accounts, including credit card, telecommunications, consumer loans and other related assets, with a face value of over $130 billion.
Encore will acquire Asset Acceptance for $6.50 per share, which represents a total equity value of approximately $200 million and a 24 percent premium to AACC’s 30 day volume weighted average share price. Asset Acceptance’s shares closed at $5.76 Tuesday evening.
Asset Acceptance this week had announced a delay in filing its earnings report for the fourth quarter and full year 2012. Simultaneous to the Encore buyout announcement, the company made public its earnings. For Q4 2012, Asset reported an 8.3 percent decline in revenues and a drop in net income to $200,000 from $4.2 million the year prior. For the full year 2012, revenues increased 4.1 percent to $226.9 million while net income fell 9 percent to $10.9 million.
Asset Acceptance shareholders will be able to choose between taking cash or the equivalent amount of stock in Encore. Michigan-based Asset will continue to operate under that name as a separate subsidiary of Encore.
“This acquisition moves our industry into a new phase of maturity defined by more efficient companies that are committed to operating ethically and treating consumers with respect,” said Encore’s President and CEO Brandon Black. “Encore’s strong operating and cost advantages will allow Asset Acceptance’s investments to be significantly more profitable and will deliver greater value to shareholders.”
“We believe Encore is a strong strategic fit for Asset as the transaction will enable us to maximize the full value of both our investments and our talented workforce,” said Rion Needs, President and CEO of Asset Acceptance. “The combination of our two companies will better position us for success in a rapidly changing and competitive marketplace.”
The acquisition of Asset Acceptance provides Encore not only with an additional portfolio, but also with valuable operations capabilities and synergy opportunities.
“Our industry is highly fragmented, and we have long been anticipating consolidation as the regulatory and business climate grows more complex,” said Black. “This transaction clearly signals that Encore will play a key role in driving this phase in our industry’s development. Transactions like this are a component of our long-term growth plan, along with pursuing growth in new asset classes and geographies.”
Black’s thoughts were echoed by at least one ARM industry observer.
“At Kaulkin, we believe this transaction illustrates the consolidation that is underway in the US debt buying industry in the wake of increased regulatory compliance and the continuance of reduced product made available to purchase from the large credit card issuers”, according to Mike Ginsberg, President of ARM advisory firm Kaulkin Ginsberg. “First, we experienced a sizeable number of large debt buyers backed by private equity firms sell out. Next, mid-players began to sell their purchased inventory to other mid-size and large debt buyers hungry for product. Now, we are starting to see consolidation among the larger players in the industry. We strongly believe this is not an isolated event as more debt buyer realize that many of the macro-economic changes that led to a reduction in purchased debt are not cyclical in nature, and as the regulatory climate heats up.”
The deal is expected to close in the second quarter of 2013.