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

“A number of established UK collection agencies are evaluating their go-forward business plan, evaluating the option of going public,” Fuller adds. The Daily Telegraph recently reported that Equidebt is weighing the option to sell or float an IPO. “My guess is it’s symptomatic,” Fuller says. “There are not a huge number of potential buyers — financial or strategic. Yet debt is a challenge for big banks, so there’s an appetite to acquire a stake in debt management companies.”

Indeed, according to the Financial Services Authority, debt levels in the UK have risen to 140 percent of income. A lot of that debt is unsecured, an indication that there will be no lack of debts to collect or service any time soon. “With the dramatic increase in consumer credit, the UK is probably the hottest market,” says Jason Spaeth, head of the London office of Varde Partners, a Minneapolis-based alternative investment firm active in the consumer debt market. “It’s drawing interest from the U.S. and Europe.”

The United States

Several U.S.-based ARM firms have been the target of foreign buyers. In addition to the 2006 acquisition of New Jersey-based Armanti Financial Services by the Indian firm of Apollo Health Street, HOV Services Ltd., an Indian business process outsourcing (BPO) company, bought LASON, a Michigan-based ARM, BPO, and healthcare services outsourcer. The Israeli firm IDT Carmel bought Minneapolis-based People First Recoveries, and a division of the National Bank of Canada took a majority position in U.S. debt buyer Credigy Solutions Inc. On the commercial front, Coface Collections North America, a division of the French commercial credit rating, insurance, and receivables management firm, bought the commercial debt collection firm of Newton & Associates. In January 2007, Euler Hermes, another international commercial credit insurer headquartered in Paris, announced that its North American division bought the Kentucky commercial debt collection firm of United Mercantile Agencies.

Although the majority of M&A deals in the U.S. are not cross-border transactions, when the dollar is weak, Ginsberg notes, such deals become more attractive.

North of the Border

The relatively low value of the dollar also has had an impact on the attractiveness of the Canadian market to U.S. players. “Up to a year ago, there was a lot of American interest up here,” says Jonathan R. Finley, President of Credit Bureau of Canada. “Now it’s not as endearing.”

Still, a year and a half ago Canada had allure for at least one major European player. Aktiv Kapital, with offices in more than a dozen countries, acquired the debt purchasing firm Portfolio Management Group – its first step outside of continental Europe and the UK.  “We were looking to capital or equity markets for assistance with growth,” says Andy Szemenyei, who was one of the firm’s owners and now heads the Canadian operation. “Aktiv, looking to be more of a global player, saw an opportunity in Canada that fit with its long-term strategy.” Since then the firm grew by 20 percent to 25 percent in 2006, Szemenyei reports. He attributes that spurt to the ability to fund transactions at a favorable rate and to deal at a higher level. “Sellers are more confident that transactions can be completed with relative ease,” he says. To foster relationships with financial institutions, the firm is growing the contingency side of the business. For future growth, Szemenyei says, PMG is looking at organic expansion, potential acquisition, and outsourcing to other agencies in Canada or offshore. So far, PMG has purchased only Canadian debt. From Canada, could Aktiv’s next move be into the U.S.? That’s a question to which Szemenyei says he doesn’t have the answer.