The servicer consolidation trend in Spain is going on at full throttle and is expected to continue well into the first half of next year.

From the deal flow, notably KKR [NTSE:KKR] is actively marketing the sale of Hipoges, the servicer it purchased in 2017 from Cerberus; Lonestar and CaixaBank [BME:CABK] are selling Servihabitat; Oaktree Capital Management [NYSE:OAK-A] is selling Redwood; and Silver Lake is selling Grupo BC, according to two sources close to and two sources familiar with the situation.

DoValue [BIT:DOV] finalised the purchase of small, specialised servicer Team 4 from Arvato, after already buying Altamira in one of the largest purchases in the market, and Intrum [STO:INTRUM] finalised the purchase of Haya in 1Q this year for EUR 140m.

The Hipoges sale is one of the larger transactions in the market, at a hefty price tag of EUR 200m, said one source close who looked at the offer but decided to not participate due to the price being too high. KKR bought the servicer for EUR 30m from Cerberus in 2017. Alantra is advising KKR on the sale which is still in the non-binding phase, the other source close said. Alantra declined to comment on the specifics of the transaction.

“There is a lot of this activity, big groups buying smaller servicers and then doing some restructuring,” one source familiar said. “However, sellers are still facing high valuations. What drives the value of these companies is the AUM. Take KKR, for example, they are trying the increase the size of the servicing contracts Hipoges has.”

For investors, it can be complicated to differentiate between the different servicers. “What is the difference between Finsolutia and Copernicus? There is not that much difference!” the same source familiar said.

Finsolutia was acquired by Pollen Street [LON:POLN] in the spring, making it one of the key developments in the servicer market in Spain.

“Hipoges, Copernicus, the owners are carving out servicing departments, to raise capital, selling long term contracts,” said the second source close. “People thought that Apollo [NYSE:APO], Bain, those funds, were going to invest a lot of resources in data, capital, etc., when they bought these servicers from the banks in the early days. They haven’t been investing, they have been squeezing the cow. They have been trying to get much return in those contracts but not investing in them. They created these zombies, not investing in long-term contracts, and these companies are just surviving.”

Given the very good performance of south European economies, new creation of NPLs and REOs has been very limited, and servicers have had a three-year period of low activity. In the face of a situation where the volumes under management have been reduced but with an expectation that new volumes would come, the market is entering into a concentration stage, according to the second source close. The consolidators in the market are those willing to compete.

“Nowadays, Hipoges, Finsolutia are the two big consolidators in the market. We’ll see what’s happening with Copernicus,” one of the sources close said.  “What Hipoges needs now is a strategic reflection. It has emerged as one of the winners of the market with EUR 45bn AUM. They need to assess their growth.”

Looking into servicing ahead

The main areas of growth for servicers are expanding into other jurisdictions where traditional servicing is needed especially in high interest rate environment where real estate is doomed to struggle, looking for a new sponsor for a new strategy of growth (such as it was the case with Finsolutia being acquired by a tech focused private equity), servicers emerging as investors themselves, especially a good option for those that were early investors in data and technology and managed to stay asset-light, like Italian servicer Gardant or Arrow.

Consolidation of servicers is bound to happen across Europe, said the second source close. “doValue will consolidate further its entities around Europe, and the same with Intrum.” According to the second source close and a source familiar, Intrum is already looking for a strategic partner.

“With cross country big consolidations, the listings will be back again,” said the second source close. “I expect these consolidators will IPO at some point.