Collection Industry M&A Activity Skyrocketing

The debt purchasing and collection industry has given birth to a frenzied level of M&A and investment activity not achieved since the late 1990’s. Over the past 6 months, 25 transactions were completed representing more than $740 million in deal value!

Strategic and financial buyers are becoming more aggressive in acquiring well-managed and growing debt collection agencies and debt purchasing firms. This has been driven by the increased confidence from improving economic conditions, the continued rise of consumer debt, greater access to debt to help finance transactions and strong performance by the many visible industry players.

Buyers are again scouring the industry to locate the right businesses to acquire. A prime example of this is the Convergys (NYSE: CVG) acquisition of Encore Receivable Management Inc. for $68 million in the 2nd quarter. Convergys, a global leader in integrated billing, employee care and customer care services, expanded its business process outsourcing capabilities with the acquisition. Below are a number of other significant transactions that have created a stir within the industry.

West Corporation (NASDAQ:WSTC) Acquires Worldwide Asset Management (WAM)
In early August 2004, West Corporation acquired WAM for $178 million. WAM is expected to generate between $100-110 million in revenues in 2004 with 15% pre-tax margins. The deal included cash at closing, an assumption of debt and approximately $20 million held in escrow pending the outcome of certain contract renewals and the expiration of representations and warranties.

Vertex Acquires First Revenue Assurance (FRA)
Vertex, a subsidiary of United Utilities PLC (NYSE: UU), based in the United Kingdom, acquired FRA, a Denver-based collection agency servicing the utility and financial sectors. With the acquisition of FRA, Vertex is pursuing its strategy of expansion in North America.

Asset Acceptance (NASDAQ:AACC) Goes Public, Raises $105 million
This is the fifth debt-buying company to go public since November 1995. The public markets have reacted positively to the addition of Asset Acceptance and the company’s public status has been helping to spur interest in the industry from the financial community. In the second quarter, Asset Acceptance put $33.8 million to work in purchasing new portfolios. In addition, revenues for the second quarter of 2004 were $51.5 million, a 35.6 % increase compared to the $38.0 million reported for the second quarter of 2003. The Company reported net income of $11.6 million for the second quarter of 2004, compared to net income of $8.6 million.

SKM Growth Investors Acquires Senex Financial Corporation
SKM made a significant investment in Senex, a leading medical debt buyer, headquartered in Indianapolis, Indiana. As the market continues to be saturated with debt buyers looking to expand purchasing credit card receivables, private equity and others are looking to partner with strong management in other niche industries such as medical, telecom and bankruptcy portfolios.

What’s on the Horizon?
We expect that M&A activity will continue in both the U.S. and international markets, particularly involving large, well-managed debt purchasing and collection companies. We also expect to see one or more additional debt purchasing companies pursue an IPO, especially those that are partnered with private equity firms. With regard to debt collection agencies, we expect continued interest from buyers that provide an offshore solution and have financial backing from a large financial or strategic partner, as well as plenty of interest from U.S. based buyers. In short, the rest of 2004 is going to be a robust time period for deal activity with many buyers and sellers reaping the benefits of a second consolidation period.

Mike Ginsberg is President and CEO of Kaulkin Ginsberg Company, which, since 1989, has provided owners, investors and executives with the advice, expertise and information needed to grow or sell their companies. Kaulkin Ginsberg is the most recognized source of M&A, research and consulting services for the Debt Collection and Accounts Receivable Management industries. The Kaulkin Media division publishes the leading credit and collections website, insideARM.com, as well as several popular electronic newsletters.

Mike has served as chair and keynote speaker at numerous association meetings and industry conventions. He is a member of the board of the Institute of Merger and Acquisition Professionals (IMAP), a member of the Association for Corporate Growth (ACG), and a member of the American Collectors Association (ACA) and Debt Buyer's Association (DBA). He also serves as an expert witness, and sits on the advisory boards of several industry associations and publications. Mike can be reached at (301) 907-0840 or at mike@kaulkin.com.