The boom in companies offering seriously indebted people help with their personal insolvency have grown massively. And they all appear to be in the North West. Michael Taylor reports
Ges Ratcliffe gets thank you cards from his customers. They may not be cheerful holiday cards from sunshine hot spots, but the steering of people into an individual voluntary arrangement (IVA) is actually a piece of tough love that people in terrible debt problems see as light at the end of the tunnel.He certainly refutes the charge that he's making money out of other people's misery. "I've had some lovely cards from people who we have helped to improve their lives," he says.
And Debtmatters' Ratcliffe is not alone. Websites and marketing literature of a mass of similar new companies from the North West listing on the Alternative Investment Market (AIM) all point to a booming market heading only one way.
This is how IVAs work. The debtor makes a deal with a creditor - usually a credit card company - to pay them a specific proportion of the debt, often about a third, in exchange for writing off the rest. The IVA provider takes a set-up fee and monthly fees for the length of the arrangement. The debt is sold on and appears in a bank balance sheet in the bad debt provisions.
As long as the arranger of the IVA - a qualified insolvency practitioner - can establish that the debtor cannot afford the repayments, the chances of the application going through are strong. It's a major growth area and seems to have become a major driver of the financial services sector in the North West.
Understandably, a glance at the consumer debt issue reveals why there is an enormous amount of investor interest in the debt management sector, with Chorley's Debt Free Direct paving the way for a number of businesses also floating on AIM and attracting huge take-up from shareholders.
All the businesses offer a package to people who have too much debt and offer them a lifeline through an IVA, setting up a trust account to enable them to pay off creditors and get on an even keel. With credit card debts rising to £31trn in the UK, this is a growing market and Debt Free Direct has gone on record as saying it will target Australia next.
The success of the flotations and the increasingly central role these businesses take in the mainstream of the financial services sector have also been helped by the recruitment of strong board directors. The chairman of Bolton-based Debtmatters is Noel Guilford, an experienced corporate financier - and, until recently, the chairman of the North West region of the Institute of Directors. Former Halifax Building Society chief executive Mike Blackburn is chairman of Debt Free Direct.
Typically, the businesses have grown out of commercial insolvency practices. The pioneer of the current boom, Debt Free Direct, started as a small part of the dynastic accounting practice Lathams. As the Chorley-based firm was in the process of selling to the Tenon Group, there was little interest in the fledgling consumer IVA business that partner Andy Redmond was setting up.
In a short space of time the practice split, but the partners retained their stakes in Redmond's business. When it announced the intention to float Debt Free Direct on AIM, the mooted price was less than 10p a share. It floated at 40p and shares have remained consistently over £34 for all of 2006 so far.
A similar growth has seen good times for Debtmatters. Ratcliffe had run his own Bolton-based private commercial insolvency business, Ratcliffe and Co, since 1994 and started the consumer-facing Debtmatters in 2003.
Ratcliffe says: "Debtmatters addresses a marketplace growing rapidly. There are significant opportunities for the company to expand our business in assisting indebted consumers. Our fundraising and admission to AIM enabled us to drive forward our revenue growth."
But it's in the area of customer marketing, sourcing of leads and conversion of customers that will be critical to the success of these businesses. The net proceeds of the Debtmatters float amounted to £32.4m, which were used to give the business a marketing push and invest in staff and technology.
And that's vital, because Debtmatters generates new business via media advertising and direct marketing. The internet is awash with advertisements that target consumers and commercial entities requiring assistance in managing their unserviceable debt. The entire process of advising and administering the IVA from original enquiry to the court-registered agreement is undertaken by Debtmatters.
The route to market is not the same for some of the other players looking to get their share of this growing cake. Compass Finance, a Bury-based financial services business, has entered the IVA market following its acquisition of a business called The Debt Advisor.
Mike Sutcliffe, chief executive of Compass Finance, explains that the ability to offer a full range of options for people who are in the financial mire lay behind the move. "We come across customers who think: "One last loan will do it.' And frankly, it won't. We can say that they're going over the edge. What suits them may be a strict debt management programme, or an IVA," he says.
"On average, we are receiving around 2,000 leads a month which are suitable for a possible debt advisory solution. Following the completion of the acquisition these leads will flow straight into the debt advisory division and I am confident that this division will grow rapidly."
Finding the customers and converting them into IVAs is the driving force behind the way all of these businesses can grow. The other strategy that unites them all is a desire not to be seen as a single-product company.
Harrington Brooks is part of a cluster of debt management businesses in the Manchester area - Baines and Ernst is another - that has built up a large business from debt management programmes. But all that is changing.
Chris Holmes, chief executive, who hopes to bring the business to AIM, is also rebranding, consolidating and bringing in an IVA business to see how many of their long-suffering debt customers can be converted into a new scheme that would draw a line under financial nightmare.
Holmes' One Advice Group is looking for £327m, partly to pay for the acquisition of Abacus, an established consumer debt company. The renamed group, which chalked up pro forma revenues of £39.3m this year and has made £32.27m in profit, will then market the new One Advice brand to consumers and seek yet more acquisitions.
Holmes believes there will be consolidation at some point soon and intends to get as much market share before that point. "This market is really still in its infancy and we want to be a major player when the sector consolidates," he says. "We have 12,000 paying customers in debt management plans and because of our customer base we have the ability to convert those and new customers to IVAs. It's a tremendously exciting time."
But where could all of this go wrong? All practitioners are determined to do everything by the book. They know the image of people "getting away with it" and them "cashing in" will look bad in the mainstream press, but are working hard to keep their tactics clean.
Legislation seems to be going in the direction of actually lowering the thresholds of when an individual can enter an IVA. In the future there is pressure from within to make the process even quicker, through a Simple IVA (SIVA)
Also in: August 2006
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