Debt purchaser and servicer Arrow Global paid £75.4 million ($116 million; €103 million) for 13 debt portfolios with a face value of £800.8 million over the first six months of the year, the firm revealed in its first half results today (27 August).
More than half (58 percent) of the claims are UK-based with the remainder in Portugal. Of the purchases, 88 percent were sourced in off-market deals.
Asked why sellers would sell off market when an auction process was likely to be more competitive and generate a better price, Arrow’s chief executive, Tom Drury, told PDI that for smaller portfolios, the auction process was more work. Most of the banks that Arrow buys from have sold to it before and can have a frank discussion about the price at which they are willing to sell.
In July, the firm signed its first servicing contract in Portugal, a 10-year agreement with US debt manager CarVal Investors.
Arrow reported total revenues of £76.7 million for the first six months of 2015, a more than 48 percent increase on the same period last year, as its acquisition of UK-based debt servicer Capquest fed into the firm’s collections.
Core collections (cash taken in from existing portfolios) increased to £100.6 million, a more than 40 percent rise year on year.
Adjusted EBITDA rose 33.9 percent to £65.7 million over the same period, while the EBITDA ratio fell to 65.3 percent from 69.2 percent as Capquest, which had an EBITDA ratio in the mid-50s, was absorbed.
The £6.5 million in synergies from the acquisition will feed through over the next few months and the EBITDA ratio should recover to around the 68-69 percent it previously stood at.
Net debt rose on the back of an acquisition spree that also saw Arrow buy Portuguese debt servicers Whitestar and Gesphone this year. Net debt stood at £507.7 million at the end of June, compared with £248 million 12 months earlier. Net debt to pro forma adjusted EBITDA was 3.8x.
Drury said that the firm was happy operating at this leverage and had no plans to reduce it for the moment. Cash cover for the first six months of the year was 4.4x, comfortably above Arrow’s target of 4x.
Arrow was established as the European subsidiary of Arrow Financial Services. In 2009 it was taken over by RBS Special Opportunities Fund and listed on the London Stock Exchange in 2013.