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Encore Capital Group Inc. (ECPG - Snapshot Report) entered into an agreement to acquire 50.1% stake in Cabot Credit Management (:CCM) to expand its global footprint in the debt purchase and recovery market. Ireland based CCM is responsible for managing consumer debt and is held by J.C. Flowers & Co. LLC (J.C. Flowers & Co.).

The purchase consideration equates to £128 million or approximately $192 million. The deal is expected to culminate in the third quarter of 2013. The transaction permits Encore to acquire the remaining 49.9% stake of Cabot Credit Management during four to six years from the closing of acquisition.

As per the agreement, CCM will continue to be an individual unit and conduct its operations independently. CCM will hold on to the present workforce and brand name.

The deal is aimed at associating the U.S and U.K market leaders, Encore and J. C. Flowers respectively to build a global leader in the debt management market.

The U.K. represents the second largest mature debt purchase market in the world and is thus loaded with growth opportunities. Encore has been trying to grab this opportunity and profitably deploy capital in this promising market which has grown since 2009.

CCM’s strong management team, efficient operations, strong relationship with financial institutions and steady growth levels for the past 14 years has persuaded Encore to realize their objectives. The operating advantages of CCM are expected to leverage the prosperity of Encore by rendering the existing investments all the more profitable.

Through its specialist businesses, CCM purchases and executes contingency collections and customer tracing. On culmination of the deal, CCM will be exposed to more capital enabling it to purchase more debt and engage in other asset categories. Additionally, greater exposure to resources and expertise from Encore will enhance its operational performance. In the first quarter of 2013, revenues of CCM increased 12% year over year to £42 million or $63.8 million. Revenues are expected to increase further on the back of its alliance with Encore.

As Encore will now own 50.1% stake in CCM, this improvement in CCM’s operations is expected to fortify Encore’s operating performance and thereby bolster company growth going forward. The Zacks Consensus Estimate for full year 2013 is currently pegged at $3.58, translating into a year-over-year improvement of 17.27%.

Encore currently carries a Zacks Rank #3 (Hold). Among others in the industry, Credit Acceptance Corp. (CACC - Snapshot Report), Discover Financial Services (DFS - Analyst Report) and Regional Management Corp. (RM - Snapshot Report) carry a favorable Zacks Rank #2 (Buy) and are worth considering.

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