Debt Management Consulting | L.E.K. Consulting (2024)

Overview

Debt management (debt purchase and debt servicing) has developed into an important service industry to all companies that offer unsecured credit to consumers (e.g., lenders, telecommunication providers, utility companies, insurance providers, ecommerce providers, publishers). More recently, debt sales have been deployed as a management tool by lenders in other asset classes, in particular secured lending, SME lending and other commercial loans.

Debt management is currently a series of individual domestic markets due to country-specific regulations and vendor behaviors, but significant cross-border consolidation has created a quasi-European market. As a result, all leading providers now operate across multiple countries and increasingly compete for the same investment opportunities.

Now an established industry and an accepted risk by the capital markets, leading European providers predominantly finance themselves either through public listings and/or public bonds, which has reduced their funding cost significantly. At the same time, providers deploy data warehouses and sophisticated pricing tools and analytics to maximize recovery rates and to optimize operational efficiency. These effects, combined with ambitious growth plans, have created “sellers’ markets” across Europe, characterized by declining profitability, very keen pricing and stern competition for portfolios in all asset classes (unsecured, secured and commercial).

How we help

This business environment requires domestic and multicountry providers to respond to a number of vital strategic and operational challenges in order to achieve their strategic goals, maximize value for stakeholders, create viable investment opportunities and, last but not least, position themselves for the emerging “end game” in European debt management.

L.E.K. works with clients to provide an empirical, fact-based and independent perspective, which provides stakeholders with strategic insight and practical recommendations. Our rigorous approach is trusted by finance providers, resulting in confidence from banks and maximum value for shareholders.

We have advised management teams and investors in debt management for over 15 years and have an unrivaled understanding of trends and dynamics in European debt management markets, in terms of debt flow, regulation and competition.

Key questions we address include:

• Is our current strategic position tenable in this fast-moving and fiercely competitive European environment? What strategic and operational plans are required to achieve the short- and medium-term strategic goals of our shareholders, management and staff?

• In which countries should we be operating, including the immature markets, and what services should we be offering, e.g., purchase vs. debt servicing?

• Which end markets should we be focusing on, e.g., financial services vs. utilities?

• Which asset classes should we be servicing, e.g., unsecured consumer debt, secured consumer debt, SME or commercial debt?

• What IT systems, capabilities and back office do we need to meet creditors’ and debtors’ needs?

Examples of our work

To learn more about how we help clients create value, please refer to these case examples:

• L.E.K. is the leading provider of transaction support services in European debt management and has advised almost all pan-European providers in M&A situations, for both sell-side and buy-side mandates.

• L.E.K. has supported the shareholders of leading debt management businesses to achieve valuations that have attributed significant value to their operating platforms in addition to simply valuing the future cash flows of the existing back books.

• One of the leading European debt management providers engaged L.E.K. to support it in assessing the attractiveness of a number of large European markets. Our advice and recommendations underpinned its European expansion strategy, and the business now successfully operates in three countries, positioned strategically well for the European “end game.”

• L.E.K. assisted a major European multicountry player in reviewing its strategic position in all its country markets, including advising on practical actions required to achieve scale positions in countries in which it had a small presence or had stagnated, and how to reinvest in its strengths to achieve ongoing success in markets in which it was already strong. The client has reinforced its position at the “top table” of European debt management following implementation of this advice.