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

Buying In

“Credit grantors are expanding internationally, and companies providing debt collection and purchasing are being forced to keep up,” notes Mike Ginsberg, Kaulkin Ginsberg President and CEO. Cross-border M&A gives agencies and debt buyers access to new clients. However, entering a foreign market can be fraught with pitfalls. Cultural differences, as well as language, legal, and regulatory ones, can be vast. Acquiring an established local firm can help ease the way. To be successful, Ginsberg says, buyers need to retain senior management with “skin in the game” – for the long, not just the short, term.

Management is key in every transaction. It is even more essential in cross-border ones. If a takeover candidate does not have a strong enough team, a buyer faces an execution risk, warns former EMCC Chief Executive Stacey J. Schacter. EMCC backed away from at least one cross-border deal for that reason, he reports. “We would have had to invest a lot of money and it might be a distraction for management to operate so far away. So it was not in the best interest of the company,” he explains. In addition, he cites some area-specific concerns. In the UK, he says pricing is too high; in Italy, he sees significant risk with the legal system; in China, the challenge is to understand the marketplace. “Foreign markets need a lot of tender, loving care,” Schacter says, “to bring them up to a level of sustainable profitability.”  

The UK

Several M&A deals – domestic and cross-border – have been concluded in the UK during the past year. In addition to the Transcom and Nikko deals cited above, Sovereign Capital, a UK-based venture capital firm, acquired the international outsourcing division of Buchanan, Clark and Wells, a collection agency based in Glasgow, Scotland. Last summer, UK-based Equidebt acquired another UK firm, European Collections & Investigations (ECI). Two transactions already have been announced this year:  the acquisition by a consortium of private equity firms (OakHill Capital Partners, GenNx360 Capital Partners, and Knox Lawrence International) of Vertex Outsourcing, which has an ARM utility-focused division, First Revenue Assurance; and Black Tip Capital Holdings’ takeover of debt purchaser Marlin Capital Europe, as well as its sister debt collection company, Marlin Financial Services Ltd.

Despite Nikko’s acquisitions of Cabot and Clarity this year, at least one industry insider says that in the UK debt purchasing arena, investors are focusing more on purchasing portfolios rather than buying up existing firms. There’s been a change in debt purchasing, according to Kevin Fuller, Director of Marketing, Advisory and Analytics at TDX Group, a Nottingham-based debt sale brokerage, which also manages a network of collection agencies. “We’re seeing pure investors with zero operational capacity in the UK – firms like U.S. debt purchaser Arrow Financial, which is purely a funder in the UK, as well as investment banks and funds – are buying portfolios outright and using a panel of collection firms to service the debt,” he says. In 2007, Fuller expects this approach to account for a major share, or close to it, of debt purchasing. Some investment firms, he notes, are taking the same model to the continent. Debt purchasers with a platform need to keep acquiring debt to feed the servicing platform, he points out. Those without such a fixed cost can be more selective. “There’s a growing preference,” he says, “to be more nimble.”