Former investment bankers Charles Whiting and Jake Vermunt have bought DebtManagers. Photo / Supplied
Former investment bankers Charles Whiting and Jake Vermunt have bought DebtManagers. Photo / Supplied
When Charles Whiting and Jake Vermunt began to look into buying a business in early 2020 they wanted something that would perform well through all economic cycles.
The Covid pandemic had just hit and uncertainty was at a peak as countries around the world closed their borders.
But they neverimagined a debt management company would be the opportunity they were looking for.
"When we first started looking for a business I don't think our expectations would have landed us at debt management," says Whiting - an Australian who was a former investment banker with Lazard and now lives on a dairy farm in the Waikato.
But the pair noticed a lot of attributes they liked.
"I think the big challenge was you go home to your partner and say we are buying a debt collection company and they were like 'you're what?'"
The pair didn't rush in, instead watching the performance of the company before sealing the deal in November 2020.
Now 18 months later they have rebranded what was called Intercoll to DebtManagers and have big plans to grow the business.
Whiting says its business model is different to a debt collector in that it buys the debt at heavily discounted rates from telcos, power companies and second-tier lenders and then collects it over time.
A debt collection agency typically works on behalf of another company and charges fees on top of the debt to pay for its service.
Whiting says under that model the person who owes the debt pays for the cost of the collection.
"Often it exacerbates their financial hardship because they are in difficulty to begin with."
He points to Australia where the practice of adding fees and charges to debt is against the guidelines which the Australian Competition and Consumer Commission issues for the collections industry.
"We see our model as being closer to what operates in Australia.
"By owning the debt it really allows us to invest behind the customer over a really long period of time."
He says that means it can enter into more sustainable repayment plans with customers.
"Rather than hitting them up to pay it back at $100 a week it could be $20 a week. And because we are not layering the fees and charges on top effectively that debt is getting paid back faster."
But buyers of delinquent debts have also been dubbed "vulture funds" in other countries with companies pursuing the debtors by phone, text message, email and social media for repayment.
Vermunt says it takes a more personal approach to collecting the debt.
"What has been forgotten with technology being used more and more is that debt is a really personal and individual problem.
"If you look at what causes people to get into debt [repayment problems] it's not because people choose to - there are always people that don't want to pay - but a lot of the time it might be divorce, loss of job, personal circumstance that cause them to get there. A lot of our process is sitting down and understanding how they got there.
"We have seen a lot come through Covid - people's cafes have been closed or taxi drivers out of work - none of them intended to get to this point and a lot of them are embarrassed about it as well and part of our process is let's talk about it, let's understand where you have got to."
They also referred borrowers to financial mentors.
"Then we will rely on any recommendation they make and, in some instances, we have got a debt relief programme at the moment where we write off a million dollars a year of debt and we let the financial mentor be the arbiter of it."
Big opportunity
Vermunt - a former investment banker with EY in New Zealand and former strategy manager for Fletcher Building, estimates the opportunity for growth is large with around $10 billion in debt becoming overdue every year.
Around $4b of that debt is owed to government agencies the Ministry of Social Development, Ministry of Justice and Inland Revenue.
"Our approximation is about $10b plus of debts in the marketplace every year that are going bad - whether that is bank credit cards, the non-bank lenders, telco, utility.
"It's a big sector and the scale of the problem is significant. And in light of the cost pressures and where the economy is going it's likely to get a little bit worse before it gets better."
Vermunt says they currently buy around $150m to $200m in debt a year and only around $500m of the $10b is sold.
They see the business as more of a disruptor.
"It's slightly different to most growth stories out there in that because we are in a mature market in New Zealand people are fighting over market share and it is price driven.
"Of the $6b there might be half a billion or a billion that is sold every year out of NZ - so it is actually a new product and a new niche. It's more about telling the story to convert people into this practice. So it's actually really exciting."
There can be a range of reasons why people get into trouble paying for their debts. Photo / NZME
Its main rivals are Australian-owned businesses where the practice of buying debt is much more common.
Baycorp - the name most Kiwis would link to debt collection - was bought out by Australia's Credit Corp Group in 2019. ASX-listed Collection House, Pioneer Credit and Panthera Finance also compete in debt-buying space.
Whiting and Vermunt are pushing their Kiwi ownership as a point of different with offices in Auckland's Avondale as well as teams in Christchurch, Taranaki and the Waikato.
They have been approached to buy debt in Australia with some of their existing clients being transtasman but for now they plan to grow in New Zealand.
"For now we have got limited resource and we want to be really focused in what we are doing."
And they haven't ruled out a share market listing for the company down the track.
Vermunt says: "I wouldn't rule any of that out but for us it's building that business."
Whiting adds: "If someone turns up with a lower cost of capital then great we will entertain the conversation. But this is not a buy and flick play by any stretch."
