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

Developing Opportunities

Neil A. Wood is Group Managing Director for Melbourne-based Global Credit Solutions Ltd. Global Credit offers credit management, debt collection, credit reporting, and risk management services in more than 70 countries – in Asia, Africa, Europe, the Middle East and the Americas. His operation has a financial interest in firms in eight countries and has established a network of carefully vetted local partner agencies in the rest.

His take on the best opportunity in emerging markets? “You have to look at a market’s stability, both economic and political,” he says. The legal system matters, too.  In Hong Kong, Singapore and Malaysia, the laws are very much based on British administrative systems, he points out. However, he notes, mainland China is very different. Southeast Asia and Asia are huge potential markets, he acknowledges. “But if you rely on what worked in the U.S. or Europe,” Wood says, “you’ll get bitten.”

 Likewise in Africa, in former French and British colonies, the administrative procedure is established, he adds. In the Middle East, in the United Arab Emirates and especially Dubai, there is a lot of potential. More dollars are spent on infrastructure and development than anywhere, Wood says. “But for Western debt collection companies, there’s a danger of risking capital investment,” he says. “There are cultural issues and language issues, as well as political and religious ones.

M&A Outlook

“We’re likely to see continued growth in M&A in Europe this year,” Wood predicts. “The cross-border activity is capitalizing on the European Union, which in many ways is becoming the United States of Europe.”

Still, obtaining bank financing may be more challenging. Although 60 percent of respondents to a recent IMAP transaction survey reported that access to bank financing in Europe was easier in 2006 than in 2005, 30 percent indicate they expect it to be more difficult this year, while 55 percent expect it to be about the same and only 15 percent expect it to be easier. As for North America, although 65 percent expect bank financing to be the same and 9 percent expect it to be easier to obtain, 26 percent say it’s likely to be somewhat or substantially more difficult to arrange.

As for the attraction of near-shore collection operations, Ginsberg says: “We’ve seen a lot of interest in near-shore M&A. Some firms that expanded there organically have matured and are solid enough to attract interest.”

At the moment Asia poses special challenges. “It’s a problem for companies like those in the United States and Germany that base their approach on a budget-driven model and want to amortize their costs over a three-year period,” Wood says. “Smart players consider amortizing over a longer period. The rewards are greater in such huge potential markets.”