1H09 M&A Deal Volume in the ARM Industry is Up but Deal Value is Down Substantially from Last Year

Rockville, MD – It remains an active market for mergers and acquisitions in the debt collection / accounts receivable management industry overall, however larger transactions have been hampered by the credit crunch and economic recession, according to Kaulkin Ginsberg, the industry’s leading M&A and strategic advisory firm. In the first half of 2009, there were 21 announced transactions with a total deal value of $103 million – compared with 15 deals valued at $1.43 billion at this point last year.

The major discrepancy in deal value is due to three large transactions that closed in the first half of 2008; industry buyer NCO Group acquired Outsourcing Solutions, Inc. for US$325 million; Investor AB purchased 50 percent of Lindorff Group for US$558 million; and Exponent Private Equity LLP acquired Lowell Holdings Limited for an estimated US$394 million.  

So far, 2009 deal activity has been almost completely driven by larger ARM companies acquiring smaller ones, whereas 2008 deal activity in the first half of the year also included first-time strategic and financial buyers making initial platform acquisitions. Of the 21 transactions completed in 2009, only two involved a financial or strategic buyer – the rest were industry buyers, defined as larger ARM companies, former owners, or current/former executives.

“The numbers don’t reflect the level of interest in the market,” said Mark Russell, Director at Kaulkin Ginsberg. “We are seeing a consistent level of seller and buyer interest, but many of the deals are dependent on the buyer’s ability to obtain debt financing – which has been difficult in the current market – and on the seller’s willingness to accept some form of deal structure in order to bridge the gap between the seller and buyer’s value expectations.”

Liquidation rates have declined in all market segments over the past year, impacting the financial performance of some ARM companies and thus affecting deal value and/or terms. In addition, most small transactions are not publicized and involve companies generating less than $1 million in annual revenues. Russell added that ARM companies that are in distress still present good acquisition opportunities for larger ARM companies, and that is driving interest from industry buyers seeking to obtain new clients or personnel, gain a time zone, or to expand into a new vertical market.

Looking ahead to the rest of 2009, Russell anticipates more of the same. “Most deals will involve industry buyers, as first-time strategic and financial buyers are just going to be even more selective and take longer to close deals.” He noted that there might be a slight uptick in strategic and financial deals closing in Q409, because sellers already in the market will be motivated to close before the end of the year to avoid the potential increase in capital gains tax.

About Kaulkin Ginsberg
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, services focus on analysis, growth, and exit strategies. For credit grantors, the focus is on optimizing receivables management strategies. Kaulkin Ginsberg’s media division, publisher of insideARM.com, is the worldwide leader in providing timely news and insight on the recovery of debt in all industries. Read more about Kaulkin Ginsberg at www.kaulkin.com.