Q108 M&A in the Debt Collection / Accounts Receivable Management Industry Active Despite Slowing Economy: Kaulkin Ginsberg Anticipates Increased Foreign Investments in U.S. Accounts Receivable Management Companies

Q108 M&A in the Debt Collection / Accounts Receivable Management Industry Active Despite Slowing Economy

Kaulkin Ginsberg Anticipates Increased Foreign Investments in U.S. Accounts Receivable Management Companies

ROCKVILLE, Md. (Business Wire EON) April 7, 2008 -- The U.S. economic climate is causing buyers across many market segments to take a more cautious approach toward acquisition opportunities, but the size and number of mergers and acquisitions in the debt collection / accounts receivable management (ARM) industry is consistent with last year’s results to date, according to Kaulkin Ginsberg, the industry’s leading M&A and strategic advisory firm.

Most transactions were among small to midsize ARM companies with deal values in the $5M to $50M range

Strategic and financial buyers were primarily concerned with declining liquidation rates and challenges associated with accessing debt to finance transactions; however, the quarter ended with nine completed transactions, the same as Q107, and produced roughly $461 million in total deal value – more than three times the amount generated in Q107. “Most transactions were among small to midsize ARM companies with deal values in the $5M to $50M range,” noted Michael Lamm from Kaulkin Ginsberg. “The exception was NCO Group’s acquisition of Outsourcing Solutions, Inc. for $325 million – a deal that combines the two largest debt collection agencies in the U.S. and represents over 70 percent of the total deal value for the quarter.”

In terms of buyer type, seven transactions involved larger debt collection / ARM companies acquiring smaller ones, with the remaining two completed by one strategic and one financial buyer. Geographically, five of the total transactions took place among U.S.-based companies and four were cross-border deals, in which the buyer and the seller were based in different countries.

Lamm said this is an indication that despite the economic turmoil, mergers and acquisitions are still getting done with ARM companies. Buyers and sellers are starting to utilize deal structure – such as earn outs, retained equity and sellers notes – to bridge gaps in purchase price. “We expect continued interest in the ARM industry from both strategic and financial buyers who are looking for platforms, as well as larger industry players who can take advantage of economies of scale in their operations to generate synergistic value from strategic acquisitions.”

This is especially true for companies in niche markets of ARM like healthcare. In February, The Outsource Group (TOG) acquired California-based J.J. Mac Intyre Co. Inc. – one of approximately 10 similar mergers and acquisitions involving healthcare debt collection firms completed over the past 18 months. “We think this is a trend that will continue in 2008,” said Lamm.

Cross-border mergers and acquisitions are gathering momentum as evidenced by U.S.-Based Galaxy Asset Management, LLC’s acquisition of a controlling interest in International Risk Management (IRM), a debt collection operation with a call center in Mexico. This facility provides Galaxy Asset Management with Spanish-speaking collections for accounts in the U.S. In March, Netherlands-based Intrum Justitia, a leading credit management services firm, acquired Solutius Belgium, owner of two Belgian collection firms. The transaction will allow both companies to capitalize on significant synergies between them.

Looking to the rest of 2008, Kaulkin Ginsberg anticipates the ARM industry to produce well north of $1 billion in total value and may exceed 2007’s deal value total of $1.65 billion, depending on pending mergers and acquisitions in Europe. In terms of deal volume, Kaulkin Ginsberg expects the number of transactions to pick up by the second half, and the total for 2008 should exceed 2007’s results. The buyer list will continue to include strategic and financial players seeking platforms, but most buyers will be larger ARM industry companies – particularly those that are private equity backed – seeking strategic add-on opportunities that allow them to enter new markets, expand their service offerings, and/or increase market share.

Kaulkin Ginsberg also predicts that European ARM companies will begin to seek platform acquisition opportunities within the U.S. market to augment their growth, leveraging additional value from the differentials in the monetary exchange rates as well as the acquisition multiples being paid for European ARM companies vs. their U.S. counterparts. “The U.S. debt collection industry is by far the largest and most mature in the world,” noted Lamm. “With the U.S. dollar struggling against most other currencies, this could be an ideal time for European and other international firms to buy their way into the U.S. market.”

As the leading strategic advisor for the accounts receivable management industry (ARM), Kaulkin Ginsberg has completed over 125 M&A transactions valued at over $3 billion. For ARM service providers, value-add services focus on analysis, growth, and exit strategies. For credit grantors, the focus is on optimizing receivables management strategies. Kaulkin Ginsberg's 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.

Mergers and acquisitions in the debt collection / accounts receivable management (ARM) industry in Q108 are consistent with last year's activity, according to Kaulkin Ginsberg, the industry's leading M&A and strategic advisory firm.

KEYWORDS: accounts receivable management, debt collection, mergers acquisitions, mergers and acquisitions, mergers and acquisitions in the industry

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