ARM Deals Still Getting Done in Tough Times

In the midst of the sharpest financial crisis in modern times, a recent handful of announcements of closed merger and acquisition deals in the accounts receivable management industry point to a market that is still seen as worthy of investment.

One of the more palpable consequences of the ongoing economic downturn has been the so-called credit crunch – an inability, or unwillingness, for capital holders to lend to consumers, businesses, and even each other, especially for activity now deemed as non-essential as M&A. This has decimated middle- and small-market M&A, categories that the vast majority of collection agencies fall into.

But in the past 60 days, Kaulkin Ginsberg Company (KGC) -- an advisory firm that offers M&A services to the ARM industry -- has closed five deals involving collection agencies.

“This is actually an attractive time to buy, if you have financing,” said Mark Russell, a director at KGC.

The circumstances must fit, as always, noted Russell. The largest deal closed by KGC was United Recovery Systems being acquired by a private equity firm, announced in late December (“United Recovery Systems Acquired by Private Equity Group,” Dec. 24, 2008). In that deal, URS – a large collection agency based in Houston – provided an attractive platform for private equity firm Audax’s entry into the ARM market.

But the other deals have been significantly smaller. In a deal announced Tuesday, KGC served as the advisor for Georgia-based National Credit Systems’ purchase of Rapid Collection Systems, based in Arizona. Both companies specialize in apartment and rental collections.

There have also been deals that were driven by former collection executives looking to get back into the business or current executives striking out on their own.

“In this down market, veteran industry players are stepping in,” said KGC Associate Michael Lamm.