Exponent buys debt collection agency

Exponent Private Equity has backed the secondary management buyout of debt purchasing company Lowell Holdings Ltd in a deal estimated to be worth between €188m and €251m (£150m–£200m).

Hawkpoint Partners was retained by vendor Cabot Square Capital, which has backed Lowell since its formation in 2004, to run a competitive sale process launched in the middle to late last year. It is understood that the decision to divest the business was taken before the onset of the liquidity crisis.

The sale process, described by a source as a “full blown auction”, attracted both trade and private equity buyers with the emphasis on private equity. “These are more private equity style assets and the final round of the auction had a definite private equity flavour to it,” said the source.

Leeds-based Lowell posted a turnover of £50m in 2007. It specialises in purchasing consumer debts from blue-chip organisations and then managing the recovery of those debts.

A senior debt facility of £100m comprising a three-year term loan was provided by a syndicate led by Europe Arab Bank, with Lloyds TSB Corporate Markets and nabCapital (a division of National Australia Bank). GSC Group and DE Shaw & Co supplied mezzanine financing to the tune of £30m.

“It is important in the current market to know where to find debt because there is debt there,” said one insider on the assorted group of lenders.

Private equity has had a healthy appetite for debt purchase and collection businesses in recent years. Worsening consumer credit means more business for these companies. However, it is still a moot point whether increasing bad debt and a potential economic downturn make these assets more attractive.

“The reality of the debt purchasing businesses is that the model is new and has never been tested through a recession before. They might be more busy, but there could also be more delinquent debt,” noted the source.

Palamon Capital Partners owns Milan-based Si Collection SpA. It bought the company in March 2007 with the intention of consolidating the Italian debt collection market, in which there are about 200 operators. Specialist financial services investor AnaCap Financial Partners bought Apex Credit Management from BCW Group late last year.

Buyout groups generally tend already to have a stranglehold on the debt collection sector, with deals in the space often second-generation buyouts. Nikko Principal Investments, for example, acquired UK debt purchaser Cabot Financial Holdings Ltd for £275m in April 2006 from Barclays Private Equity. In October 2006, Advent International invested in Polish debt collection business ULTIMO in a secondary buyout from AIG Capital Partners.

UK-based First Credit Management is currently on the block, being sold by Bridgepoint, with financial buyers accounting for the lion’s share of bidders. While buyout groups are clearly hungry for debt collection companies, there is unlikely to be a raft of deals as there are not a huge number of assets in the sector.

Exponent, set up by former 3i executives in 2004, was investing from its £805m second fund closed in January this year. As part of the Lowell deal, Exponent appointed Adrian Hill, former chief executive of HFC Bank and general manager direct businesses at HSBC, as Lowell’s non-executive chairman.