Costs, Economy Presented Perfect Opportunity for ARM Veteran

Veteran collection industry executive Judy LaSpada recently re-entered the accounts receivable management business and bought back the debt collection agency she sold years ago.

UK-based business process outsourcer Vertex, part of United Utilities PLC, acquired First Revenue Assurance (FRA) from LaSpada in 2004, at a time when the collections industry was thriving.

When Vertex took over the business, Denver-based FRA employed 200 people and had yearly revenues of around $20 million, according to LaSpada. But even at that level, the debt collection firm was only a tiny part of the billion dollar corporate parent, and received relatively little attention.

Over the past several years, FRA’s business had shrunk to $15 million in revenues.

Last fall, LaSpada — along with partners Michelle Cooney, Ryan Kwasky and Tracy Kwasky — started a business process outsourcing group of her own, Virtuoso Sourcing Group. The firm also included a debt collection component.

When LaSpada learned that FRA was being put on the block by Vertex, Virtuoso snapped it up in a deal completed last month (“Virtuoso Sourcing Group Completes Strategic ARM Acquisitions,” May 6).

Michael Lamm, an associate at ARM advisory firm Kaulkin Ginsberg and an expert on debt collection M&A, said that the reunion between LaSpada and FRA was a natural one. “It takes good people in executive management to be successful in the debt collection space,” he noted. “A premiere ARM executive like Judy will be a true asset to FRA.”

LaSpada noted that timing was critical to the launch of Virtuoso, and ultimately gave the group the opportunity to acquire FRA. She said that the revenue side of such a business has taken a hit during the recent economic downturn. But the recession also meant that the expense side of the business had changed, too.

“The cost of putting such a business together was much more desirable than it had been,” LaSpada explained.

Leases, payroll, vendor contracts all cost less now than they did a few years ago, so LaSpada’s firm is competing against others with higher legacy costs (if they haven’t renegotiated contracts). For example, collection application software licenses cost her firm about 40 percent less than they would have two years ago, LaSpada said.

Another factor was that any firms conducting or hoping to conduct business with the government needed to show they are providing some portion of their contracts to minority and women-owned businesses, which few in the BPO and collections business do, according to LaSpada. “Women-owned business enterprises are in considerably higher demand today,” she said.

As legacy contracts expire, the cost advantage that LaSpada enjoys will evaporate, she admitted. “Hopefully, by that time we will have enough time to build some competitive traction.”

And she thinks this is a good time for someone entering the collections business. The economy has started to turn around. Once the job market recovers, consumers who were not traditional debtors but are debtors now will be anxious to re-establish good credit scores. So they will be looking to repay debts, making a collection firm’s business easier, LaSpada contends.

However, she admits there is a risk of a “new normal” for some who may now become habitually delinquent and defaulting payers. But she thinks this will be a minority of the new debtors.

“There’s still a stigma around bankruptcy,” LaSpada explains. “People who were forced to walk away from their mortgages are still going to want to own in the future.” To do so, those people will need to boost their credit scores by repaying delinquent debt.