Within 3 months of announcing the agreement, Encore Capital Group, Inc. (ECPG) has completed the acquisition of Michigan-based Asset Acceptance Capital Corp. (AACC). All the operating subsidiaries of the latter have also been taken over by the former.
Encore Capital paid a purchase consideration of $200 million, based on a per share value of $6.50. This amount translates into a 24% premium on the 30-day volume-weighted average share price of Asset Acceptance as of Mar 6, 2013, when the acquisition was announced.
Following the acquisition of Asset Acceptance’s business, Encore Capital’s tally of individual consumer accounts has crossed the 60 million mark, with total face value exceeding $130 billion. These accounts cover credit card, telecommunications, consumer loans and other related assets.
The acquisition has only expanded Encore Capital’s portfolio, but also enhanced its operating capacity. Moreover, the company’s low-cost platform will bring down Asset Acceptance's cost.
Encore Capital will also gain synergistic benefits due to the unification of the businesses. Further, the combination of the companies’ platforms will provide larger amount of consumer data, leading to a better understanding of consumer behavior, which in turn will help Encore Capital divide consumers into more focused segments. As a result, the company will be able to improve its collections.
With over 50 years of experience in the field, Asset Acceptance is proficient in acquiring consumer debt. The company also has an experienced workforce, which will add to Encore Capital’s proficiency. Asset Acceptance's strong internal legal group should also help in the faster achievement of Encore Capital’s legal plans.
Encore Capital has an active inorganic growth strategy. It regularly acquires portfolios of competitors to expand its business and strengthen its position in the industry. The company recently started expanding internationally by inking an agreement to acquire a stake in an Ireland-based company.
The shares of Encore Capital have surged 24% since the acquisition was announced. This includes the optimism over the synergies from the acquisitions as well as the company’s strong first quarter earnings. Going ahead, we expect the share price to trend higher, reflecting Encore Capital’s strong operational performance.
Encore Capital carries a Zacks Rank #3 (Hold), while Asset Acceptance carries a Zacks Rank #4 (Sell). Other companies in the financial sector worth considering are Regional Management Corp. (RM) – Zacks Rank #1 (Strong Buy) – and Discover Financial Services (DFS) – Zacks Rank #2 (Buy).
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