Tom Drury left the top job at a FTSE firm to head up one of the UK's largest debt purchasers. Alex Cardno meets him to find out how the move to Arrow Global is going.
"My first impressions are that it is a great time to be in this market," says Tom Drury, reflecting on his appointment as chief executive of debt purchaser Arrow Global.
Softly spoken and unassuming, Drury joined the firm in September from Shanks, a FTSE 250 waste management firm. Much was made at the time of Drury's decision to leave Shanks, where he was credited with leading the firm's strategy of turning waste management into an environmental and commercial opportunity.
No such revolution is due at Arrow Global. Founded in 2005, the company has developed into what many acknowledge (some, through gritted teeth) as one of half a dozen firms which are fast forming an elite league of debt purchasers.
In recent years, Zach Lewy has very much been the face of the firm, which he founded in the UK in 2005, a few years after a spell working with Drury at Vertex, the business process outsourcing giant. With Lewy's appointment as chairman of the Debt Buyers and Sellers Group and the debt sale market ramping up after a spell in the doldrums, there was room at the top for a new chief executive. To the observer, the move looks a good fit for all sides.
Lewy and Drury's outsourcing experience has been brought to bear at Arrow, which operates by buying debt portfolios then outsourcing the collections and litigation activity to a panel of third party agencies.
Drury has commented on his dislike for the commute involved at Shanks, which required him to be in Milton Keynes during the week while his family was in Cheshire. His new role affords him a shorter journey to Arrow's Manchester offices, and the chance to lead a well established firm of 75 employees as opposed to 4,000 at Shanks.
"There was the chance to be a bit more hands-on at Arrow, which was part of the reason for moving," he says. "Having the chance to work with Zach again was another factor, but also it was the chance to join a very fast growing business and become involved in shaping the culture."
If his new role seems an adjustment, he says the change is more in the detail of the market, rather than the actual management of the company. "Debt purchase is new. In terms of thinking about management of incoming risk what we are doing is similar, so the structure is familiar but the detail is different."
And, despite being a relative newcomer to the debt purchase market, Drury is relaxed and confident about its current state, and where it is headed.
The industry had a difficult recession, but 2011 saw many of the better known firms generate new finance or private ownership, or both, as vendors looked again at selling distressed debt portfolios to free up their balance sheets.
The balance sheet
Arrow has just completed its own refinancing since the business was acquired by the Royal Bank of Scotland (RBS) Special Opportunities Fund in January 2009, with German bank WestLB joining RBS in a syndicate of lenders at the end of 2011.
"Negotiating the second syndicate was easier than the first," says Drury. "The RBS deal was the first time Arrow had taken on senior debt. The funding puts us in a strong position to go through 2012."
The refinancing followed a year in which Arrow spent around £100m on debt portfolios with a face value of roughly £3 billion. After purchasing the portfolios, the firm uses its own data analytics to segment debt into different tranches, the bulk of which are then passed to third party agencies.
Drury says the firm will look to build on last year's growth in 2012. "In the medium term we will look to expand our European footprint, but for the coming year we will continue to be in the UK," he adds. "We did 17 deals in 2011, and are seeing more semi-performing debt come onto the market. We bought a little tertiary debt last year, but not a lot because the price did not suit us."
And, despite more sellers looking to offload portfolios later in the year before their financial year end, Drury says there are some relatively decent-sized deals on offer at the moment, with the market showing no signs of slowdown. "It is a very competitive market at the moment," he says. "There are a number of well-funded players which are making it competitive, and the ability to raise capital is a critical factor."
This, Drury believes, has the potential to create some barriers to entry for any new players looking to join the market. It is certainly fair to say that last year, despite the relative "boom" in the market, there were very few instances of new debt purchasers bursting onto the scene.
"There certainly are barriers to entry to do it well," he says. "You need the credibility to demonstrate to a capital provider that they will earn a good return. Having a technology platform, good relationships with sellers and fitting in with the regulatory framework are all barriers to entry."
State of play
Drury is in no doubt where this leaves the market, suggesting that there will be some more consolidation as fewer firms meet the demands of both sellers and investors.
Regulation, of course, is high on the agenda of every firm engaged in debt recovery at the moment. Drury barely had his feet under the desk last October when the Office of Fair Trading (OFT) issued updated guidance on debt collection. This guidance followed a lot of work in the consumer credit space, with some high-profile firms in collections being subjected to OFT requirements.
There has been a notable absence of such enforcement in the past 12 months, which perhaps is an indication that the industry has stepped up its game where compliance is concerned.
Like many in the industry, Drury is of the view that regulation should remain high on the agenda, but should become more streamlined. "We would prefer for the regulatory bar to remain a high one," he says. "Debt purchase should be regulated in the same way as banking or debt sale. The switch between regulatory codes is confusing."
Drury's preference is for regulatory responsibility to end up with the Financial Conduct Authority as and when the current regime is changed.
And, while the outlook for Arrow is another year of high activity in the UK, the firm is keeping one eye on the European market, to see whether it can build on its operations in Portugal. The company is mitigating the risk of European expansion by following its third party partners into new markets, leaving it in a position where it can withdraw if the market is unfavourable, or inject funds if there is potential.
As for the UK market, Drury anticipates some diversification among debt purchasers, as well as some consolidation. He says: "I think some [debt purchasers] could diversify into matching debt purchase with other financial services offerings. Some will offer assetm management alongside debt purchase, and the international model will grow."
For Drury, the priority is to maximise Arrow's data capability and use that to make it the largest data-driven debt purchaser in the UK market.
Outside work, he has an interest in politics and sport and plans to run the Paris marathon with his daughter in April. "I'm a little behind with the training," he admits.
Drury isn't the only one facing a marathon - all eyes are on the top few debt buyers to see how they fare in the debt purchase long distance.
Tom Drury: the CV
2011-present: Appointed chief executive of Arrow Global
2007-2011: Becomes group chief executive of waste management firm Shanks Group
1996-2007: Joins Vertex Data Science as managing director
1992-1996: Promoted to finance director of North West Water
1991-1992: Joins North West Water Group as group financial controller
1981-1984: Gains MA in politics, philosophy and economics from the University of Oxford
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