Getting Their Due

  Two prominent collections-industry software vendors changed hands this summer, an indication that the market for accounts-receivable management software has growth prospects.
  At first glance, the recent sales of two collections-industry software developers, Narex Inc. to credit-scoring powerhouse Fair Isaac Corp. and the spin-off of Ontario Systems to its founders, seem like mere coincidences. But they may indicate that larger companies and outside investors are becoming aware of the potential of collections technology firms.
  "These (software) companies in general are receiving more revenue over time," says Mark E. Russell, an associate at Kaulkin Ginsberg Co., a Bethesda, Md.-based merger-and-acquisition firm specializing in accounts-receivable management and customer relationship management (CRM) firms.
  According to Russell, the collections software industry has bright prospects because of the reluctance of third-party collection agencies to invest in expensive proprietary systems. "The outsourcers quite frankly are putting out great products and have greater resources than in-house," he says.
  Earlier in July, Tom Grudnowski, San Rafael, Calif.-based Fair Isaac's president and chief executive, said that his firm, developer of the widely used FICO score as well as numerous other products to manage risk, was looking for more acquisitions. On July 28, Fair Isaac announced that it had acquired Narex for $10 million in cash.
  Fair Isaac was "pretty well placed in marketing solutions, origination solutions and account-management solutions," says Andrew N. Jennings, vice president of global account management solutions.
  But Fair Isaac didn't have much of a line-up to aid early-stage collections, and "we had nothing in recovery," Jennings says. "What the Narex acquisition did was fill out our offerings in the credit life cycle."
  Narex's products assess consumer accounts that become delinquent and then enter recovery, allowing collections agencies and creditors to make informed decisions about which accounts are most likely to produce high returns.
  Fair Isaac is still mulling over its marketing program for its enhanced product line. Some 250 clients worldwide use Fair Isaac's Triad system for managing account acquisition and portfolio management and early account delinquency. Card issuers access Triad directly from Fair Isaac or through processors like First Data Corp. and Total System Services Inc. (TSYS).
  Narex will continue to operate out of its Golden, Colo., headquarters. Narex founder Bernard Nann now has the title of vice president of collection and recovery solutions at Fair Isaac.
  According to Nann, Narex and Fair Isaac had "talked for a long time about a number of different possibilities for several years. Now the time was right and the motivation was right for both sides ... this was not one party going after another." He adds, however, that Narex had "partnership discussions" with other industry companies too.
  Shortly before the Narex announcement, Muncie, Ind.-based Ontario Corp. disclosed that it had reached a definitive agreement to sell all the assets of its Ontario Systems subsidiary to an Indiana investment group. The group includes Wilbur R. Davis, Ontario Systems' president, and Ronald K. Fauquher, senior vice president, as well as Oxford Financial Group Ltd., an Indianapolis private-equity firm. The deal closed in early August.
  Davis and Fauquher founded Ontario Systems in 1980. No significant operational changes are planned at Ontario Systems, which has nearly 400 employees and will remained headquartered in Muncie.
  Privately owned Ontario Corp. said it was selling Ontario Systems, which it bought in 1985, to concentrate on its core businesses. Its other subsidiaries are CDS Group, a contract manufacturer, and Sherry Laboratories, a testing firm.
  "They have three very, very different businesses in their portfolio," Davis says. "It's a good time for them to exercise an exit strategy."
  Terms of the deal were not disclosed. The transaction also included another wholly owned Ontario Corp. unit, Cle Elum, Wash.-based Comtronic Systems Inc., maker of Debtmaster collections software.
  Ontario Systems, which had annual revenues of about $48 million in its 2001-2002 fiscal year, makes receivables-management software systems for collection agencies, bank card issuers, hospitals and utilities. Its products include FACS and CT Vision, and the new Artiva Recovery system planned for rollout next year, Davis says.
  Artiva represents the company's attempt to break further into the direct creditor market.