Global Aspirations: International and Cross-Border ARM M&A Activity Gains Momentum

Follow the Money

Who is buying and funding these deals? Industry players were involved in nine of the 20 international acquisitions, five of them cross-border buys in 2006. Two industry buyers concluded two cross-border transactions each, and one closed the remaining deal. Among them: Last summer NCO took a 75 percent stake in Australian Receivables Ltd., which early this year expanded its operations with the acquisition of another Aussie firm, Statewide Mercantile Services; NCO also completed its takeover of Star Contact, a Panama-based contact center company that NCO says it intends to use to launch customer relationship management (CRM), accounts receivables management (ARM), and debt purchasing for Latin America. Luxembourg-based Transcom Worldwide S.A., a European CRM and debt collection company, acquired two European debt collectors – Finsterer + Koenigs Inkasso GmbH in Germany and Credit Business Services Ltd. in the UK. And early this year Credit Corp Group Ltd., a leading publicly traded collection firm in Australia, acquired Pioneer Credit Malaysia, a consumer receivables management firm in Malaysia.

Private equity and other financial firms are also in the hunt. In fact, they were involved in another nine of the 20 international ARM transactions last year, including five cross-border deals. For example, a National Bank of Canada subsidiary, National Bank Financial, acquired a majority interest in Credigy Solutions Inc., a debt purchasing and servicing company with operations in the U.S. and Brazil. The investment banking firm of Goldman Sachs acquired a stake in the Moscow-based collection agency Sequoia Credit Consolidation. Nikko Principal Investments Ltd. purchased an 85 percent stake in UK-based Clarity Credit Management Solutions Ltd. to add to its earlier acquisition of Cabot Financial, one of the largest debt purchasers and collectors in the UK. “In fact,” notes Kaulkin Ginsberg’s Russell, “there were private equity firms on both sides of the Cabot transaction.”

Organic Expansion

Still, not all ARM firms interested in international expansion are opting for acquisition as their strategy-of-choice. The proverbial exception that proves the rule, Phillips & Cohen Associates, headquartered in New Jersey, elected to use a niche service – deceased debt recovery – as an entrée into the UK market. In February of this year, the agency announced the opening of an office in Manchester, England. “We’re a full-service collection agency in the U.S.,” notes Adam S. Cohen, the firm’s co-chair and CEO. Referring to collecting debt owed by individuals who have passed away, he says, “It’s a sensitive situation and an underserved market.” For most clients, he points out, it’s a new revenue stream, a fact that opens doors faster than traditional collections. “Not many firms have it as a fulltime focus so it makes more sense for us to grow organically,” Cohen explains.

As it stands, the firm is already assessing opportunities in other lands. Although reluctant to tip his hand, Cohen does say he views the Manchester office as a “leaping off point” for Scotland, continental Europe, and beyond.