Predictions for 2007; What’s Next for ARM?

As we say goodbye to 2006, I am left thinking about what impact the changes that we experienced will have on the ARM industry and our individual businesses in 2007 and in the years to come.  Here are my predictions:

Mergers and acquisitions will continue to reshape the industry

In 2006, total worldwide M&A activity across all market segments shattered the records that were set during the “dot com” boom.  The ARM industry also set its own record in 2006, as we previously predicted.  Our latest tally shows 68 completed transactions with slightly more than $3 billion in deal value.  We will release final numbers to the market shortly.

Private equity was a major driver in 2006, participating in a whopping 80 percent of the dollars that changed hands.  $1.6 billion of this is attributed to the privatization of NCO Group and West Corp.  It is worth noting that with NCO going private, there are currently no publicly traded ARM companies that focus on contingency collections. 

Also worth noting: there were seven cross-border deals announced last year involving companies based in India, Australia, Russia, the United States, the United Kingdom, Canada, Germany, Panama, and Mexico.  As ARM globalizes, we expect this trend will increase. 

We expect that M&A activity will remain strong in ’07 because

1. Pricing multiples are at relatively high levels for strong performers.
2. There is an abundance of cheap and available debt to fund acquisitions.
3. Private equity is flush with capital and their interest in ARM remains high.
4. International interest is high and will result in more cross-border transactions.
5. Agencies and debt buyers alike will likely expand through acquisition.
6. The Republicans are no longer in control of the government, and buyers and sellers alike may try to get deals done before the ’08 elections instead of taking a wait-and-see-what-happens position.

Will 2007 M&A results exceed 2006’s record breaking numbers?  This is highly unlikely unless NCO sells again or goes public again quickly.  Still, M&A deals involving larger companies in the industry – both debt buyers and contingency agencies that are backed by private equity – are likely to make 2007 another memorable year for M&A.