New Moves at the Top of the ARM Industry

Mike Ginsberg

Last week, West Corp. announced it entered into a definitive agreement to sell its accounts receivable management (ARM) business to Alorica, Inc., a California-based provider of call center solutions. When this transaction closes, West will effectively exit from an industry in which it emerged as one of the biggest players.

This transaction is the latest example of major changes taking place among the largest ARM firms in the United States.

Late last year, Expert Global Solutions – the parent company of ARM market leader NCO Group at that time – sold a number of business units, including Transworld Systems, education, attorney network, bad health care debt, government and U.S.-based third party collections to private equity firm Platinum Equity, removing itself from U.S. collection altogether. This transaction capped an active year in which two of the largest debt buyers made a series of major domestic and international acquisitions, leading the consolidation charge in the debt buying market segment. Earlier in 2014, Account Control Technology announced its acquisition of Convergent Resources (Convergent), one of the last remaining consolidators from the turn of the century.

There is clearly a major shake-up underway at the top of the U.S. ARM industry that will result in a new “Top 10″ list of ARM companies when it is completed. This is not the first time we have witnessed a major turnover among the largest players.

Less than 10 years ago, we lived through another transitional period when significant changes occurred among these firms. From 1996-2006, all of the ARM companies in the top 10, with the exception of GC Services, went through at least one major merger or sale of the entire company. Who can forget the emergence of Outsourcing Solutions (OSI), NCO Group, and Risk Management Alternatives (RMA) that gobbled up businesses, including Payco American, FCA International and Union Corp? Although the result will be similar in that there will be a changing of the guard at the top, there are two vast differences to point out this time around.

First, the driving force behind the last major shake-up was private equity’s desire to deploy capital to amass market share in the ARM industry, which occurred over a 10-year period. Today, the driving force is the government regulator’s vast influence over the U.S. creditors creating a market that will result in fewer, larger vendors that are capable of absorbing escalating operating costs and running with an increased level of transparency demanded by the clients and regulators. The resulting changes will be more swift and have a greater impact this time around.

Secondly, the last shake-up at the top resulted in an abundance of startup ARM firms forming as qualified management teams defected from the consolidating operations. Now, far fewer startups will emerge due to the substantial costs associated with opening an accounts receivable management firm in today’s market and the intense requirements credit grantors are placing upon their vendors. It will be interesting to see the new top 10 list emerge when this round of changes is complete.