Arrow buys Mars Capital in bid for greater share of Irish loans sector
Ireland's highly profitable loan-servicing industry looks set for a shake-up after Manchester-based company Arrow Global yesterday snapped up Oaktree's Irish servicing platform, Mars Capital, for £15.5m (€16.8m).
The move comes as the banks enter the final deleveraging phase and prepare to cast off billions of euro worth of bad debts amid heightened pressure from the European Central Bank.
AIB and Permanent TSB are both readying large-scale loan portfolios for sale over the coming months, marking the first significant activity in the space in almost a year.
Arrow intends to use the Mars Capital platform as a springboard for a greater slice of the Irish market, a push that will be led by the firm's existing management team headed by Kevin Blake.
Mr Blake said the sale to Arrow enables the loan servicing arm to pitch for business from companies other than Oaktree.
The US distressed debt and private equity giant has been among the most aggressive of the international players in acquiring billions of euro worth of soured loans from Nama and the banks.
The deal frenzy resulted in Mars Capital managing large volumes of mortgages, including those originated by Irish Nationwide Building Society and Permanent TSB's one-time subprime unit, Springboard.
Under the deal unveiled yesterday, Mars Capital's new owner, Arrow, will continue to partner with Oaktree, and service freshly acquired loan portfolios in the UK and Ireland.
But Mr Blake said the merged entity intends to "build on the existing platform".
While the firm will look to capture loan portfolios "currently being serviced," he said "it will be easier to win new relationships".
Loan servicing contracts are typically put up for renewal every three to five years.
Arrow's incursion into Ireland, which resulted in a windfall for Mars Capital's main stakeholder, Oaktree, and its founders, Matt Gilmour and Alex Forrester, is likely to intensify competition in the sector.
Capita Asset Services remains the heavyweight, although it is increasingly challenged by the Australian listed financial services group Pepper, which established itself here in 2012.
The group is in the midst of being acquired by private equity giant KKR, which recently quashed speculation it intends to exit the Irish market.
The buyout giant pledged to further "the commitment that Pepper Group has shown to date for its business in Ireland and Europe, its employees and its customers, and help the company fulfil its full growth potential".
The expansion of the loan-servicing industry here also raises the prospect of further securitisations - a strategy that defined the boom era.
Earlier this year it emerged that Mars Capital had opted to refinance €332m of former Irish Nationwide Building Society and Permanent TSB subprime loans in the bond market.
The portfolio of thousands of morgtages, serviced by Mars Capital - but ultimately owned by a fund controlled by Oaktree - were bundled into bonds that mature in 2025.
At the end of July, Mars Capital was servicing over 10,000 customer accounts and had £1.6bn worth of assets under management in Ireland and the UK. Chris Boehringer, managing director and co-head of Distressed Debt Europe at Oaktree Capital Management, described Arrow as "one of the leaders in Europe in the secured and unsecured investment and servicing space".
Mr Boehringer said "their breadth of expertise and servicing scale give us a partner who can work alongside us in the UK and Ireland as we seek to take advantage of future investment opportunities."
Lee Rochford, group CEO of Arrow said the acquisition expands Arrow's European footprint and "augments our capital-light asset management capabilities, provide further impetus to our profitable growth trajectory".