M&A Activity in the Debt Collection and ARM Industry Exceeds $2 Billion in 2008

The total deal value for mergers and acquisitions in the debt collection / accounts receivable management industry (ARM) for 2008 ended up at just over $2 billion, exceeding 2007’s total of $1.7 billion, according to Kaulkin Ginsberg, the leading M&A and strategic advisor to the industry. There were 36 deals closed in 2008, compared to 50 transactions in 2007.

“The effects of the economic slowdown and the credit crunch had a significant impact on M&A activity, particularly in the second half of ’08. Third and fourth quarter deals generated only 28 percent of the total deal value for the year,” said Mark Russell, Director at Kaulkin Ginsberg. “Over 80 percent of the total deal value for the year was generated by five large ARM transactions — three of these by private equity buyers who traditionally rely heavily on debt financing to fund transactions.”

The year’s five major transactions included NCO Group’s acquisition of Outsourcing Solutions, Inc. for US$325 million – a deal that combined the two largest debt collection agencies in the U.S. Investor AB purchased 50 percent of Norwegian debt collection company, Lindorff Group, for US$558 million; UK-based Exponent Private Equity LLP acquired Lowell Holdings Limited, a British debt purchasing company, for an estimated US$394 million; and mortgage insurer MGIC Investment Coup. sold its remaining stake in the largest U.S. debt purchasing firm, Sherman Financial Group, LLC. to management for US$209 million. Late in the fourth quarter, United Recovery Systems, L.P. (URS), a debt collection agency specializing in bank card / credit card contingency collections, was recapitalized by private equity company Audax Group. Terms of this transaction were not disclosed.

Looking ahead to 2009, Russell foresees less total deal value being generated overall, but potentially greater deal volume for the year. Russell expects this greater deal volume to from larger ARM companies acquiring smaller ones, and distressed ARM companies being forced to sell or recapitalize their businesses. “Some ARM companies are experiencing declining or negative financial performance due to the poor economic conditions and recovery results. A number of these companies will be good acquisition targets for larger and more sustainable ARM companies, or they could serve as platforms for turnaround investment specialists that see an opportunity to improve their performance in a short period of time.” The good news, he added, is that the ARM industry is a recession-resistant industry, and receivables management companies are often among the first to come out of a recession as liquidation rates increase while placement volumes remain high.

He anticipates there will be fewer large transactions due to the challenging financing environment and its subsequent negative impact on pricing and deal structure. “The M&A market will turn around once the lenders become proactive in financing acquisition opportunities and liquidation rates for debt portfolios stabilize, but these trends may not unfold until the second-half of ’09 or beginning of 2010.”

About Kaulkin Ginsberg
Kaulkin Ginsberg is the leading M&A and strategic advisor for the debt collection / accounts receivable management industry (ARM), completing over 125 M&A transactions valued at over $3 billion. For ARM service providers, their value-add advisory services focus on analysis, growth, and exit strategies. For credit grantors, the focus is on optimizing receivables management strategies. Kaulkin Media division is the worldwide leader in providing timely news and insight on the recovery of debt in all industries. Kaulkin Information Systems creates secure and affordable workflow, document, and business process management technologies. Read more about Kaulkin Ginsberg at www.kaulkin.com.

Editor’s Note: Kaulkin Ginsberg is the parent company of insideARM.com.