NCO Group, RMA $118.8 million Deal Approved

By Patrick Lunsford, CollectionIndustry.com

A bankruptcy judge in Ohio paved the way for a unique and massive transaction in the collection industry with the approval of NCO Group’s $118.8 million offer to acquire the assets of Duluth, GA-based Risk Management Alternatives, Inc. (RMA). The companies received the official signed approval Wednesday. NCO, headquartered in Horsham, PA, had been the highest bidder for RMA in accordance with certain sections of the Chapter 11 Bankruptcy Code.

On July 7, RMA and several of its domestic affiliates filed for protection under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Northern District of Ohio Eastern Division. Under Sections 363 and 365 of the bankruptcy code, the deal was subject to certain conditions including approval by the Bankruptcy Court, higher and better offers, customary closing conditions, and any required governmental approvals. Firms that had lost out on bidding for RMA in the first round of activity were given another chance to bid for the firm’s assets. Section 363 of the bankruptcy code allows for competing bids to be heard after an initial agreement has been made and in advance of final approval by the court. The code allows the court to set a certain threshold that must be met for additional bids to be considered. In the case of RMA, Bankruptcy Judge Kay Wood had set the amount at $5.25 million above NCO’s initial bid of $118.8 million. Since no competing bids were received before the deadline of Monday, August 22, the NCO offer was accepted by RMA and approved by the Bankruptcy Court. The absence of competing bids and the approval of NCO’s offer averted a potential auction for RMA’s assets.

In winning the right to purchase RMA out of bankruptcy, NCO will strengthen its position as the largest debt collection firm in the country. In fact, NCO now stands poised to become the first ARM firm with yearly revenues of over $1 billion. The deal also significantly expands NCO’s debt purchasing business. In the initial July 7 press release announcing the bankruptcy filing and purchase agreement, NCO Chairman and CEO, Michael Barrist, commented, “We believe the acquisition of our largest portfolio to date (RMA’s portfolio) is a meaningful step in positioning our portfolio business as a more dominant player in its market.”

The transaction is currently expected to be neutral to NCO’s earnings in 2005 and accretive in 2006 and beyond. The deal is expected to close in the next few weeks.