Credit Corp will buy the remaining parts of its failed rival Collection House in a deal worth just $11 million.
Credit Corp announced yesterday that it has entered into a binding agreement with the Collection House administrators to acquire the remaining business and all the outstanding shares in Collection House.
Collection House creditors will meet to vote on the proposed deed of company arrangement, and ASIC and the Federal Court will also take a look at the transaction.
Collection House went into voluntary administration in June and since then its affairs have been in the hands of John Park, Ben Campbell and Kelly Trenfield of FTI Consulting.
A board statement at the time said: “The decision comes after exhaustive attempts to restructure the business and raise additional funding were unsuccessful”.
Collection House has been through three years of losses and problems with its lenders triggered by changes to its operating model that were forced on the company after damaging criticism of its debt collection practices.
Credit Corp has played a role in the ensuing drama. It bought Collection House’s Australian purchased debt ledger in late 2020 and its New Zealand PDL in February this year. Those transactions left Collection House with only a collections business.
It also acquired Collection House’s senior secured debt and provided it with short-term working capital.
By April, Collection House was largely debt free and attempting to re-establish itself in the PDL market. But its performance had deteriorated past the point of no return.
Its December 2021 half-year financial report revealed a 43 per cent fall in revenue and a loss that blew out from $9.5 million in the December half 2020 to a loss of $63.7 million in the December half 2021.
In a frank assessment, the company said trading conditions were “difficult” and the company’s operating performance was “disappointing”.
“General levels of activity in the receivables management sector over the last six months remained depressed, as clients continued to implement conservative customer engagement strategies in response to the longer than anticipated COVID-19 recovery,” it said.
It said it was trying a new approach to the PDL market, co-investing with third parties. By doing this it hoped to reduce the amount of capital it had to commit and generate higher return on equity. That approach did not work out.
Credit Corp chief executive Thomas Beregi said in a statement yesterday that the acquisition will double Credit Corp’s revenue from collection services activities in Australia and New Zealand.
Beregi said: “Long-standing clients will benefit from the certainty of a secure financial structure and the capacity to invest in enhanced service provision over time.”