How Debt Purchasing Companies are Being Valued in Today’s Market

The type of accounts under management and how they liquidate will determine which calculation will have the most impact in determining the base value.

Once the base value is derived, the buyer will determine if a premium is warranted, and if so, apply a multiple to this base value. In the current market, the multiple has ranged from 1.25 to 2; a multiple of 1.5 or higher, however, has been assessed for debt purchasing companies that have one or more of the following characteristics:

• A specialization within a niche market that is poised for substantial growth (e.g., healthcare and commercial)
• A superior liquidation strategy that provides a competitive advantage in the marketplace (e.g., intensive litigation strategy)
• A blue chip management team committed to remaining post-transaction that includes the individuals with the debt purchasing expertise and client relationships.

Certain buyers, including many private equity firms, are still basing the value of debt purchasing companies as ongoing concerns on a multiple of adjusted EBITDA, but other buyers are assessing the base value of the debt purchasing company and applying a premium to it. One measurement of value is not necessarily better or worse than the other. What counts in a competitive M&A market is whether the buyer and seller can mutually agree upon value and the best way to structure the transaction to satisfy both parties.

If you have specific interest in understanding how your debt purchasing firm may be valued in today’s market, please feel free to contact me directly.

Mark Russell manages M&A transactions for Kaulkin Ginsberg Company, where he is a Director.  Mark can be reached at 301-907-0840, ext. 120, or by email.

Kaulkin Ginsberg Company is the parent company of Kaulkin Media and insideARM.com.