Incorporated: 1926 as National Collection Office
NAIC: 56144 Collection Agencies
SIC: 7322 Adjustment & Collection Services
With more than 80 call centers in the United States, NCO Group, Inc., is the largest provider of accounts receivable collection in the world. The company offers accounts receivable and delinquency management; customer and billing service; and market research and telemarketing. In addition to its U.S. operations, the company provides international services in Canada, the United Kingdom, Australia, and throughout Europe.
NCO Group, Inc., began its life in 1926, when it was founded as National Collection Office by Louis Barrist. The company was located upstairs from the Schubert Theater on South Broad Street in Philadelphia. For its first 60 years, National Collection Office remained a small company, employing only a few people and basing its futures on small-time collecting of department store bills and rent collection.
By 1986, the company was being operated by Louis's son and daughter-in-law in a small garage at their home in Havertown, Pennsylvania. They had three employees. The company had 60 clients and only $40,000 in profits in 1986. "It was never more than a mom-and-pop operation," said Michael Barrist, grandson of the founder, in a 1992 interview with the Philadelphia Inquirer.
Michael J. Barrist took the reins of the company from his retiring parents in 1986. At the time, revenues were only $70,000. He paid $25,000 for the company and renamed it NCO Financial Systems Inc. His experience until that time had not been at the family company but rather at U.S. Healthcare as a certified public accountant. He took leadership of the company immediately, however, and began aggressive plans for growth. His first step was to hire Charles C. Piola, Jr., as the company's executive vice-president. Piola focused on sales and Barrist on operations and service. Together, they grew the company more than 400 percent in the first year alone.
By 1992, the company had more than 800,000 debts to collect and was operating in all 50 states. Many of the company's new clients were in the medical field, but the customer list was diverse, including AT&T, Mellon Bank, Sun Co., National Freight Inc., the Philadelphia 76ers, and the Pennsylvania Higher Education Assistance Agency.
In the eight-year period ending in 1994, the company grew to $5 million in sales and 125 employees. Once sales figures climbed, acquisitions were the next strategy to grow the company. Armed with a revolving loan from Mellon Bank, NCO purchased three companies before 1996: B. Richard Miller Inc., Eastern Business Services, and the collection division of Trans Union Corp. In 1996, the company purchased Management Adjustment Bureau Inc., and Michael Barrist's dream of going public was much closer to reality.
In November 1996, the newly renamed NCO Group, Inc. joined the ranks of publicly traded companies when it completed its initial public offering (IPO) of 2,875,000 shares on the NASDAQ exchange. The shares were priced at $13.00 per share, and the company raised $30 million. In slightly more than six months, NCO's stock shot to $35 per share. The capital raised in the IPO helped bring more acquisitions under the NCO Group umbrella, including TeleResearch Center Inc. of Philadelphia; Goodyear & Associates Inc. of Charlotte, North Carolina; and CMS A/R Services of Jackson, Michigan.
"We run a very aggressive company and are focused on profitability," said Michael Barrist after the acquisitions. "Some of the companies we've bought have been a little slower and [more] methodical than we were and we needed to teach them our culture." What was the NCO culture? Under Barrist it developed as fast-paced and aggressive with a strong dedication to client service.
By 1998, NCO had acquired 11 companies and was posting $118 million in revenues. Growing the company had been a top priority and the climate for expansion in the collections business could not have been better. Consumer debt rose from $914.4 billion in 1977 to $5.28 trillion in 1997, according to the Federal Reserve. This setting gave NCO Group ideal growth opportunities in addition to the company's continuing acquisitions. Bank expansion and consolidation was another factor in the debt collection industry because bigger banks tended to rely more heavily on debt collection agencies.
The company's client list continued to rise in the late 1990s to more than 7,800 active clients. To serve them, NCO grew in size to 2,200 employees at its 23 processing centers. In 1997, the company had posted $85 million in revenues. The next year, the company experienced a 50 percent increase in revenues, to $125 million. NCO Group was identified in 1998 by Janney Montgomery Scott Inc. as the fastest growing company in the debt collection industry. In May 1999, NCO Group became the largest debt collection company in the United States with the purchase of Compass International Services Corp. and Milliken & Michaels.
Although the acquisitions pushed NCO Group to the top of its industry, stock investors did not respond favorably. The trading price for the stock fell to $25.75 from $34. It regained its price by the end of the month, but the reaction was enough to cause NCO to slow down its acquisition strategy.
The year 2000 began, not with Y2K problems for NCO, but with departures of two top managers within the company. Charles Piola, Jr., and Bernard R. Miller both announced they were leaving the company. The resignations were tied to contract delays with some healthcare contracts that would create revenue shortfalls. The shortfall warning, issued by the company, also caused NCO's stock to dive to the mid-20s. The decline continued through 2000, with a 25.9 percent drop in August alone. "This is not an NCO production problem," said CEO Michael J. Barrist, who blamed changing consumer payment patterns for the drop in performance.
In October 2000, the company announced the formation of a separate debt-purchasing business in conjunction with the announcement of the purchase of Creditrust Corp. The new subsidiary, NCO Portfolio Management Inc., operated separately and could more aggressively grow while allowing Barrist to keep his promise to stockholders to temporarily halt acquisitions for NCO Group. NCO Portfolio Management, Inc. was designed as a debt-buying company and would use NCO Group's resources for its debt collecting. Therefore, NCO Portfolio Management was a built-in customer for its parent company.
For fiscal 2000, revenue rose to more than $605 million. "While 2000 presented NCO Group's most successful year to date, it also represented one of the most challenging," said CEO Barrist in the annual report. During the turbulent year, the company achieved record revenues and profits.
In February 2001, NCO Portfolio Management completed the purchase of Creditrust Corp. "We are extremely excited about this transaction," stated CEO Michael Barrist in a company press release. "NCO Portfolio Management will be able to leverage the client relationships and the scale of the NCO Group Infrastructure as well as the portfolios, historical data and highly skilled workforce of both Creditrust and NCO Group." Barrist believed that NCO Portfolio would be "the premier player in the purchased debt marketplace" and would achieve the same "best in class brand recognition that NCO Group has already achieved in the accounts receivable marketplace."
NCO Group moved into the age of the Internet in February 2001 with an announcement that it would partner with CyberStarts, Inc. and Collections X to develop e-collection products and services. NCO planned investment in both companies to develop programs and vehicles for online debt collection services.
NCO Group's stock was on the rise when it was identified as a "recession proof" business in 2001. The stock's value jumped from $11 in the third quarter of 2000 to $33 in the first quarter of 2001. But the first quarter brought another surprise for the company--a visit from the Federal Bureau of Investigations (FBI). The FBI visited NCO's Baltimore Call Center with search warrants to view pre-bankruptcy activities of Creditrust prior to its purchase by NCO. To compound the situation, the Wall Street Journal mistakenly reported that the FBI search was into NCO's own accounting records. NCO's stock dropped by $4 briefly but recovered quickly as information regarding the reporting gaffe, as well as NCO's immunity from any liability concerning Creditrust's pre-acquisition activities, was made available to stockholders. "Our position has always been that it's better to tell investors," said CEO and President Michael Barrist in a follow-up article in the Philadelphia Business Journal.
While the stock rose, so did flood waters in June 2001. Tropical storm Allison caused the first-floor personnel at Fort Washington, Pennsylvania headquarters to relocate to other parts of the building. Business was not impacted greatly and resumed a few days later. The first floor, however, was described by the company as a total loss.
Despite the tropical storm and the FBI visit, NCO Group finished the second quarter of 2001 with a 19 percent increase in revenue. Income dropped, however, as one-time charges were levied and payroll expenses increased.
Growing in 15 years from three employees to 9,200, and $40,000 to $21.9 million in net income, NCO Group clearly had exceeded all but the most visionary dreams of its first two generations of management. Third generation leader Michael Barrist had proven himself a master of the expansion game, in an industry that still held much promise for the future.
Principal Subsidiaries
NCO Portfolio Management, Inc.; NCO Financial Systems Inc.; FCA International Ltd. (Canada); Financial Collection Agencies (UK) Ltd. (U.K.); International Account Systems d/b/a MCA International; NCO Benefit Systems, Inc.
Principal Competitors
GC Services; MCM Capital Group, Inc.; Outsourcing Solutions.
Further Reading
Ahles, Andrea, "Collection Agency Finds Profits in Others' Debt," Knight-Ridder/Tribune Business News, December 20, 1998.
------, "PA-Based Firm Tops Debt-Collection Field with Buy," Knight-Ridder/Tribune Business News, May 13, 1999.
Brickley, Peg, "NCO Group Decides to Hold Off on Buys," Philadelphia Business Journal, May 28, 1999, p. 4.
------, "Once a Darling, NCO Struggles with Stock Dip," Philadelphia Business Journal, January 21, 2000, p. 6.
"FBI Launches Search of NCO Group Office's Accounting Records," Wall Street Journal, March 16, 2001, p. B2.
Fernandez, Bob, "Philadelphia Debt Collector Succeeds Due to Management, Technology," Knight-Ridder/Tribune Business News, August 10, 1999.
Gotlieb, Andy, "Collection Firm Hit Hard by Allison," Philadelphia Business Journal, June 22, 2001, p. 5.
------, "NCO Sets Record Straight on FBI Search Warrants," Philadelphia Business Journal, March 23, 2001, p. 6.
"Industry Debates NCO's Move into Debt-Buying," Credit & Collections News, October 20, 2000.
Lewis, Larry, "Big Collections from Little Debts Have a Montco Firm Growing," Philadelphia Inquirer, January 16, 1992, p. B7.
"NCO Group Execs Resign," Philadelphia Business Journal, January 14, 2000, p. 42.
"NCO Group Is All Set to Collect," Business Week, March 19, 2001, p. 113.
"NCO Group 2Q Down 61%," Philadelphia Business Journal, August 1, 2001.
"NCO Rescues Busted Buyer," Credit & Collections News, October 13, 2000.
"NCO Revenues Gain Ground," Credit & Collections News, November 3, 2000.
"NCO Sees Trouble Ahead," Collections & Credit Risk, September 2000, p. 8.
"No Good Deed Unpunished," Philadelphia Business Journal, August 4, 2000, p. 2.
Patton, Carol, "NCO on the Go," Philadelphia Business Journal, May 1, 1998, p. 19.
Waggoner, Darren J., "Commercial Agencies Thrive As Economy Dives," Collections & Credit Risk, July 2001, p. 48.
"Wall St. Likes Collectors," Bloomberg News, July 29, 1997, p. 4C.
— Melissa Rigney Baxter
