State and Local Focus to Drive Government ARM Expansion

Mike Pelone estimates the market for government receivables to be about $15 billion, and as Portfolio Recovery Associate’s new President of Government Services, he wants a larger part of it.

Accounts receivable management firm Portfolio Recovery Associates, Inc. (Nasdaq: PRAA), which makes the bulk of its money in consumer debt purchasing, entered the government services sector in 2005 with the acquisition of Alabama-based RDS/Alatax, and has expanded the unit by purchasing two more companies since then. Today, PRA’s government services unit has 760 clients nationwide. In addition to recovering hundreds of millions of dollars in bad debt for clients, PRA’s government services unit has billed and collected $750 million through its tax administration services.

While impressive, the money still accounts for less than 10 percent of a multi-billion dollar market, Pelone noted. With so many governments grappling with falling revenues due to decreases in housing values, retail sales and income taxes, the government sector offers a lot of untapped opportunity. Governments, he said, are in disparate need of revenue but they do not want to raise taxes to get it. So PRA’s message is that they don’t have to. Instead governments can and should leverage their existing tax laws to collect money already owed to them.

“Every town, city, and county in the country has the need for our services,” Pelone told insideARM.com. “Why create new taxes and regulations when there are plenty of existing laws and rules to help governments better collect existing revenues?”

Pelone is the first person to lead PRA’s combined government services subsidiaries. When he joined PRA earlier this month Pelone brought with him more than 30 years of corporate and consulting experience in building successful national sales, business development, and account management organizations. He last served as senior vice president, Sales and Business Development for Affiliated Computer Services (ACS) in Raleigh, N.C. He also held senior sales executive, executive management and management positions with UnitedHealth Group in Eden Prairie, Minn.; Unisys Corporation in Blue Bell, Pa.; Electronic Data Systems in Plano, Texas; and Burroughs Corporation in Detroit.

Kaulkin Ginsberg Director Mark Russell said Pelone’s appointment is a sign that PRA is moving aggressively to grow the government side of the business.

“They are looking for him to take it to the next level and are prepared to financially back him,” Russell said.

Russell said the company has been enamored with government services since Kaulkin helped it put together the deal for RDS in 2005. Not only is government services a good source of recurring income for ARM firms that can win government contracts, the niche doesn’t require large outlays of capital that’s necessary in debt buying.

“The great thing about government debt is that it never goes away even if you file bankruptcy. You cannot absolve yourself of any form of government debt. (Governments) also are first in line when liquidation of assets occurs in the bankruptcy process. It’s very stable,” Russell said.

Pelone said PRA has a good client retention rate and the company is positioned well to bring on new government clients because it can leverage its technology and administration operations to help government clients. For example, the technology PRA uses to help auto loan originators locate vehicle owners can be used to locate vehicles with unpaid tickets and property taxes for municipalities, he said. By sharing administrative services costs with PRA’s other business, the government services business also can introduce its services at competitive prices, Pelone said.

Pelone said PRA does aspire to have clients at the federal level, but its immediate focus remains with town, city, county and state governments.

“We’re helping governments identify unreported taxes and collect both taxes owed and plan for the next wave of taxation; as it is our mission to help government fairly and equitably administer their existing sources of revenue,” he said.