Former investment bankers Charles Whiting and Jake Vermunt bought DebtManagers. Photo / Provided
When Charles Whiting and Jake Vermunt started considering buying a business in early 2020, they wanted something that would perform well through all economic cycles.
The Covid pandemic had just hit and the uncertainty
was at its peak as countries around the world closed their borders.
But they never imagined that a debt management company would be the opportunity they were looking for.
“When we started looking for a business, I don’t think our expectations would have taken us to debt management,” says Whiting, an Australian who was a former investment banker at Lazard and now lives on a farm. dairy in Waikato.
But the couple noticed a lot of attributes they liked.
“It was focused on rehabilitation, getting people out of financial hardship and getting them back into the economy.
“When we dug a little deeper, we liked what we saw.”
Then came the even harder part – convincing their other halves.
“I think the big challenge was you would go to your partner’s house and tell them we were buying a debt collection company and they were like ‘what are you? “”
The pair didn’t rush, instead watching the company’s performance before closing the deal in November 2020.
Now, 18 months later, they have renamed what used to be called Intercoll to DebtManagers and have big plans to grow the business.
Whiting says his business model is different from that of a debt collector in that he buys debt at heavily discounted rates from telecom operators, power companies and second-tier lenders, then recovers over time.
A debt collection agency usually works on behalf of another company and charges fees on top of the debt to pay for its services.
Whiting says that under this model, the person who owes the debt pays the cost of collection.
“A lot of times that exacerbates their financial difficulties because they’re struggling to begin with.”
He points to Australia where the practice of adding fees and charges to debt is contrary to guidelines issued by the Australian Competition and Consumer Commission for the collection industry.
“We consider our model to be closer to what works in Australia.
“By owning the debt, it really allows us to invest behind the client over a very long period of time.”
He says this means he can work out more sustainable repayment plans with customers.
“Rather than hitting them to pay it off at $100 a week, it could be $20 a week. And because we don’t layer fees and charges efficiently, that debt is paid off faster.”
But buyers of overdue debt have also been dubbed “vulture funds” in other countries, with companies pursuing debtors by phone, text, email and social media for repayment.
Vermunt says it takes a more personal approach to collecting debt.
“What is being forgotten with the increasing use of technology is that debt is a truly personal and individual issue.
“If you look at what drives people into debt [repayment problems] it’s not because people choose to – there are always people who don’t want to pay – but most of the time it can be divorce, job loss, personal circumstances that push them to get there. A big part of our process is sitting down and figuring out how they got there.
“We’ve seen a lot of things go through Covid – people’s cafes have been closed or taxi drivers out of work – none of them intended it to come to this and a lot of them are. also embarrassed and part of our process is to talk about it, let’s understand where you are.”
They also referred borrowers to financial mentors.
“Then we will rely on any recommendation they make and in some cases we currently have a debt relief program where we write off a million dollars a year of debt and let the financial mentor be in charge of it. the referee.”
Vermunt – a former investment banker at EY in New Zealand and former head of strategy for Fletcher Building, believes the growth opportunity is significant with around $10 billion in overdue debt each year.
About $4 billion of this debt is owed to government agencies, the Department of Social Development, Department of Justice and Inland Revenue.
“Our approximation is about $10 billion more debt in the market every year that deteriorates – whether it’s bank credit cards, non-bank lenders, telecommunications, utilities.
“It’s an important sector and the scale of the problem is significant. And in light of the cost pressures and the changing economy, it’s likely to get a bit worse before it gets better. to improve.”
Vermunt says they currently buy between $150 million and $200 million in debt per year and only $500 million of the $10 billion is sold.
They see the company as a disruptor.
“It’s slightly different to most growth stories there in that because we’re in a mature market in New Zealand, people are competing for market share and it’s price driven.
“Of the $6 billion, there could be half a billion or a billion that is sold every year outside of New Zealand – so it’s really a new product and a new niche . It’s more about telling the story to convert people to this practice. actually really exciting.”
Its main rivals are Australian companies where the practice of debt buyback is much more common.
Baycorp – the name most Kiwis would associate with debt collection – was acquired by Australian group Credit Corp in 2019. ASX-listed Collection House, Pioneer Credit and Panthera Finance also compete in the space buying debt.
Whiting and Vermunt are pushing their Kiwi property as a different point with offices in Auckland’s Avondale as well as teams in Christchurch, Taranaki and Waikato.
They have been approached to buy debt in Australia with some of their existing clients being transtasman but for now they plan to expand into New Zealand.
“Right now we have limited resources and we want to be really focused on what we’re doing.”
And they haven’t ruled out a stock market listing for the company on the trail.
Vermunt says, “I wouldn’t rule any of that out, but for us, it’s building this business.”
Whiting adds, “If someone comes up with a lower capital cost, then we’ll keep the conversation going. But it’s not a buy-and-play game at all.”
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