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

A significant cross-border ARM deal also occurred. U.S.-based NCO Group, the world’s largest ARM firm, moved decisively into the Australian market with its purchase of a 75 percent stake in Australian Receivables last summer followed by the add-on of Statewide Mercantile Services announced in January of this year. Subsequent debt purchases and the landing of a major forward flow contract cemented its position in the market.

Will other U.S. firms follow? “There’s no hurdle, but it’s an issue of scale,” says Paul J. Cooney, Managing Director of Australian Receivables and a 35-year industry veteran. The market is relatively small – a population of approximately 20 million, plus another 3 million in New Zealand. “There’s an opportunity for some synergies, but it depends on their appetite. It’s more of a strategic opportunity,” he adds. “Time zones and travel time are important. For Asia, it’s a good geographic fit.”

What prompted Cooney to sell a majority stake in the firm he had started just three years earlier?  He wanted to grow the business, and he wanted to be focused on clients, not shareholders and capital markets. To attract large corporate clients in Australia, he needed to offer scale and a global network.

When he approached NCO, he had what he describes as a reasonably sized, profitable operation with good growth prospects – one that could fill a gap in their global operations. Also, he was a known entity, having acted as NCO’s agent in Australia for eight years.  

For additional growth, Asia is an area of interest, Cooney says. North American creditors have extensive operations there, he points out. There’s a need for services on the ground where clients are primarily in the servicing end of the cycle – CRM and first party work.  The challenge: “You have to have not just the collections but the legal and social or cultural infrastructure,” he acknowledges. “Collections there is so different. It has little in common with Western collections.”

To be successful, you need to acquire or have a trustworthy local partner there, agrees Peter D. Doherty, ledger analyst for Repcol. “In addition to culture and language,” he says, “there are currency issues and even differences with configuration of the collection systems.”

Acquisition is providing an entrée for one leading Australian firm. In January, Credit Corp Group stepped foot into the Malaysian debt market with the acquisition of Pioneer Credit Malaysia – but only after what the company described as an extensive period of due diligence of the operation and the prospects for consumer debt management there.  “This will give Credit Corp a local presence and market experience…in a market which shares a very similar legal framework and [is] expected to follow the receivables management market trends evidenced in Australia over recent years,” Managing Director Geoffrey Lucas said in announcing the deal.

What’s the outlook for the Australian market? “I think in the next five years we’ll see a lot of excitement – continued rationalization, midsize agencies getting larger, and more debt sold – by new sellers and more by existing ones,” says Repcol’s Doherty.