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D3 Reduces AACC as Encore Acquisition Nears

April 17, 2013 | About:
Sally Jones

Sally Jones

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Last week debt collection company Asset Acceptance Capital Corporation, (AACC) agreed to the $200 million offer made by its bigger competitor Encore Capital Group Inc. (ECPG) back in March. Accounts combined, the companies have purchased over 60 million consumer credit card, loan and phone accounts valued at approximately $130 billion. President and CEO of Asset Acceptance, Rion Needs, stated, “We believe Encore is a strong strategic fit for Asset as the transaction will enable us to maximize the full value of both our investments and our talented workforce. The combination of our two companies will better position us for success in a rapidly changing and competitive marketplace.”

Also last week, David Nierenberg of D3 Family of Funds reduced his position with Asset Acceptance Capital Corporation (AACC) by 8.4%, as of April 16, 2013. Nierenberg traded at an average price of $6.48, with a 0% change from average. D3 holds 4,691,647 shares after the trade.

Asset Acceptance Capital Corporation (AACC) has a market cap of $199.7 million, with a P/E of 18.2, a P/B of 1.3, and a P/S ratio of 0.9. AACC is up 35% from January. The current share price is $6.5.

Nierenberg’s holding history:



Subject to regulatory and shareholder approval, Encore’s acquisition of Asset Acceptance Capital will be completed in second quarter 2013. Encore's President and Chief Executive Officer Brandon Black commented, "This acquisition moves our industry into a new phase of maturity defined by more efficient companies that are committed to operating ethically and treating consumers with respect. Encore's strong operating and cost advantages will allow Asset Acceptance's investments to be significantly more profitable and will deliver greater value to shareholders. Consumers also stand to benefit as we extend Encore's industry-leading Consumer Bill of Rights to millions more people who are on their way to financial recovery."

Check out Encore's positive growth:

1366231947978.pngECPG data by GuruFocus.com

When GuruFocus performed an in-depth financial and performance checkup on Asset Acceptance Capital, we found multiple warning signs, showing that the time is right for Encore’s strong management arm: Asset Acceptance Capital Corporation displays poor financial strength, usually caused by too much debt for the company. Carrying long-term debt, Asset Acceptance keeps issuing new debt. Over the past three years, it issued $19.96 million. Also, the company’s Altman Z-score of 2.07 is in the grey area, implying some kind of financial stress. If it is below 1.8, the company may risk bankruptcy. Interest coverage is another warning sign. The company’s interest coverage is low at 1.7. Ben Graham prefers a company’s interest coverage to be at least 5. Finally, Asset Acceptance Capital Corporation has had operating loss over the past three years.

GuruFocus research also reveals the company’s revenue growth.

Asset Acceptance Capital Corporation 10-Year History of Revenue

Dec03 Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12
160.19 214.75 252.68 254.87 248.00 234.21 172.49 198.40 218.08 226.94


1366230754794.pngAACC data by GuruFocus.com

Guru David Nierenberg is the founder of D3 Family of Funds. His update portfolio lists seven stocks with a total value of $147 million and a quarter-over-quarter turnover of 0%.



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About the author:

Sally Jones
Sally Jones writes about Real Time Picks. She says, "I truly enjoy watching the Gurus in realtime and telling their story."

Rating: 3.8/5 (4 votes)

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