Follow Michael Lamm on Twitter from ACA Northeast Expo

Michael Lamm, Associate at ARM advisory firm Kaulkin Ginsberg, is at ACA International’s Northeast Debt Collection Expo & Conference in Atlantic City, N.J. He will be providing updates from the meeting via Twitter.

You can follow Michael directly from his Twitter feed (http://twitter.com/mlammkgc) or check back here for live updates.

Care to Comment?

Thinking Strategically in the Current ARM M&A Landscape: Dissecting the Central Credit Services - Astra Transaction -

The accounts receivable management (ARM) industry is still operating under severe financial constraints, like the rest of the economy, especially when it comes to securing resources for expansion. But mergers and acquisitions are happening for those with the strategic vision to creatively integrate operations.

Many deals in the ARM industry are tactical; they are driven by the need to expand client rosters. Indeed, acquiring a company that you do not directly compete with can be the best way to grow a client list. And even in a down economy, small tactical deals are happening. But larger deals require a more strategic vision before investors and capital jump onboard.

A recent example is Jim Eccleston, Chairman & CEO of Central Credit Holdings (CCH), with its wholly owned subsidiary Central Credit Services a auto deficiency, bankcard/credit card focused agency headquartered in Jacksonville, Fla. His firm recently acquired Astra Business Services, a collection agency based in California, but with more than 210 collectors in two locations in India. Kaulkin Ginsberg represented Astra in the deal.

Although my view was from the other side of the transaction, the long-term strategic plan involved on the acquiring side of the transaction was what drove it to close. Jim wanted to give his clients a viable offshore option that he owned and managed. Jim, and the venture capital that backs his firm, liked that Astra had started as an ARM shop in India, rather than migrating CRM agents to collection work. What really leapt out at me was that he was relatively uninterested in Astra’s current clients; he cared more about the highly tenured staff that was in place and the facilities that house them. Also, there was plenty of capacity at Astra’s two locations for expansion. So the deal brought him immediate capacity that would have taken years to develop.

The strategic fit was clear: acquire an offshore platform that would allow Central Credit Services to offer clients and potential clients a low-cost, full service ARM solution, one that could be easily expanded in current facilities.

Deal activity in the ARM industry has been less active than in prior years due to the economic conditions, but deals are still getting done that are driven by clear visions of how the acquired entity will fit into the overall company.

Michael Lamm (http://www.linkedin.com/pub/0/61/a2b) advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly at 240-499-3808 or by email.  You can also read his other blogs/articles at http://www.insidearm.com/go/blogs/Lamm.

Care to Comment?

Follow Michael Lamm on Twitter at ACA Convention

Michael Lamm, Associate at ARM advisory firm Kaulkin Ginsberg, is at ACA International’s annual convention in Las Vegas. He will be providing updates from the meeting via Twitter.

You can follow Michael directly from his Twitter feed (http://twitter.com/mlammkgc) or check back here for live updates.

Care to Comment?

Tactics for Surviving and Thriving in this Volatile Market

I had the pleasure of speaking at the Mid-Atlantic ACA Collectors Unit meeting in Baltimore a couple of weeks ago for the second year in a row.  The topic I covered this year was “Special Challenges for the Small Agency - Solutions for Surviving and Thriving in Today’s Economy.”  (you can view the presentation slides at http://www.kaulkin.com/go/insight/presentations#2009)

We spent a lot of time talking about the following:

• The Current Economy and What that Means to Small Agencies
• Creating a Roadmap for Success in a Down Economy 
• Tactics for Surviving & Thriving
• When the Going Gets Tough – What Options do you have? Merge? Liquidate?
  

During the discussion period, there were two specific areas that we covered in great detail, 1) creating an action plan, and 2) cutting out clients that are not profitable:

Create a Measurable Action Plan – For many agencies, placement volumes have risen dramatically while liquidation rates are down. That means it’s not “business as usual” for most firms.  I strongly recommend that you sit down with your management team and write out your plan to adapt your business model. Block out a few hours in the morning/evening with your most recent monthly P&L and Balance Sheet and start developing a plan to cut costs, change or renegotiate vendor relationships and cut underperforming staff.  Work with your managers to put together a 3-5 page summary along with a financial plan for the agency going forward.  The key to a successful plan is to engage management and get their complete buy-in to change.

Cutting out Clients that are Not Profitable – It is important to continually evaluate whether your clients are profitable by looking at the contribution margin by each of your clients. Many of the off-the-shelf software platforms have programs for you to input fixed and variable expenses associated with a particular client and also help you determine an appropriate corporate allocation to input into the model.  Like any model, it is only as good as what you put into it!

As we approach the summer months, now is the time to increase your operational efficiencies. Hold your people accountable for the decisions they make!

Are you changing your business strategy due to the current market conditions? I look forward to hearing your feedback/commentary.  

By the way, if you are looking for a speaker at your next ACA unit meeting or you are just looking for fresh content for your newsletters, please let us know.  Check out our previous presentations and articles we have written.

Michael Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory team. Michael can be reached directly at 240-499-3808 or by email.

Kaulkin Ginsberg is a sister company of insideARM.com.

Care to Comment?

ARM Owners Curious about Capital Gains Tax

At the DBA conference in Las Vegas in early February, I heard a lot of talk about deteriorating economic conditions, the lack of financing, and speculation on when debt portfolio prices would bottom out.

But the big topic on the mind of many accounts receivable management firm owners was their exit strategy and what was going to happen to the capital gains tax rate now that President Obama is at the helm.  Is it going to remain at 15 percent, or climb up to 20 percent? 23 percent? 27 percent?

President Obama has said publicly that it would be at least 20 percent and less than 28 percent, but the question is: when would this take effect?  With all of the economic turmoil our country is experiencing, I can’t see capital gains making it to the top of the list, but Obama will need to address the capital gains tax by the end of 2010, when the current 15 percent rate is set to expire. If nothing is done, the rate will revert back to 20 percent, where it was before the Bush administration changed the tax laws in 2003.

If you are thinking about selling your business in the next 12-18 months and are concerned that you will face a substantial increase in the capital gains rate, realize that President Obama has enough on his plate before he can make capital gains taxes a priority.  I think Obama and his Cabinet will wait for the stimulus plan to be successfully implemented to help our country push out of this recession and restore confidence in our troubled banking system before pushing for a hike in capital gains.

My message to owners is this: don’t lose a lot of sleep on capital gains and hastily decide to pursue a sale now specifically because of a potential substantial hike in the capital gains tax rate.  Instead focus on growing your business and effectively managing your P&L in this difficult time, which would likely help to offset any value lost with a tax hike when it comes time to sell.

My prediction

I wouldn’t expect much to change with capital gains.  My prediction is that Obama is going to let the 15% rate expire and then leave it at 20 percent.  A 20 percent rate is equal to the lowest rate that existed in the 1990s and the rate that President Bush proposed in 2001. It is almost a third lower than the rate that President Reagan signed into law in 1986.

What do you think is going to happen with capital gains?  I look forward to hearing your thoughts/commentary.

Michael Lamm advises owners on their growth and exit strategies for Kaulkin Ginsberg’s Strategic Advisory Group. Michael can be reached at 240-499-3808 or at mlamm@kaulkin.com

Editor's Note: insideARM is a sister company of Kaulkin Ginsberg.

 

2 Comments

'Tis the Season To Take a Hard Look at Your P&L

"More Inventory That is Less Collectible."

This is the common theme we are hearing from agencies across practically every consumer market. As a result of worsening economic conditions, many agency owners and executives are contemplating some tough decisions going into the New Year to profitably manage increases in inventory.

Many of the tough decisions center on the following topics:

Collectors – Staffing continues to be an agency’s biggest cost and throwing more collectors at increased inventories that are less collectible is a recipe for disaster. To offset potential losses, some agencies are utilizing near-shore/offshore locations to take advantage of a cheaper cost structure and a surplus of personnel.

Cutting Clients That are Not Profitable – It is important to continually evaluate whether your clients are profitable by looking at the contribution margin by each of your clients. Get rid of or renegotiate fee rates with clients that are costing you more to service. 

Management and Sales Staff – I know it is sometimes hard but try to objectively evaluate each of your managers as well as your sales people and determine if they are contributing to the success of your business and whether they are needed to fulfill your business goals in 2009.

Satellite Offices – If you have a satellite office that is underperforming but you have a long-term lease obligation, it is quite possible to find another collection agency or a service business (telemarketing, business process outsourcer, etc.) that is looking for that geographic coverage and experienced personnel. They may have an interest in taking over the lease and assuming the payroll expense.

Technology – The IT infrastructure is the backbone of agency. Do a review with your IT team by year-end to understand how you can trim costs associated with software, hardware, phone support and staff.

Marketing and Advertising – Year-end is a great time to take a look at what worked and what didn’t in 2008 and figure out the most cost effective plan to keep in front of your clients and prospects. A common strategy in a down market is to rein in spending on new client development, evaluate which conferences are really productive for you and your staff, and focus on building business from existing clients, which may include offering expanded or new services. Be careful not to cut marketing costs for the sake of simply cutting costs!

What are you seeing in the market? What are your plans for returning to profitability in 2009?

Michael Lamm manages M&A transactions for Kaulkin Ginsberg’s Strategic Advisory Group. Michael can be reached at 240-499-3808 or by email.

2 Comments

ARM Companies in Trouble Should Weigh Their Options Now

Wall Street is not the only place where distressed situations are happening; the ARM industry is experiencing them too.

Over the past several months, we have begun to see more ARM companies fall into financial trouble – companies servicing a range of industry sectors from financial services to commercial collections. Some are working placements that are not profitable and experiencing downward rate pressure from clients. Many are pummeled with too much inventory and they cannot effectively manage it with current resources.  Some owners have been forced to dip into their personal savings to keep their businesses afloat. We have also seen situations where agencies have broken loan covenants with the bank and they are either looking for an investor or a buyer to quickly acquire the company as a going concern, or as a last resort, the bank is forcing the shareholders to liquidate assets (desks, chairs, workstations, IT equipment) through an auction process to repay the loan.

Despite how dire the situation may be, the following three options may exist:

• A well-capitalized regional or national agency could have an interest in merging in your operation to obtain:

• Attractive clients
• Facilities that offer additional time zones or capacity
• Experienced management and collectors 
• Access to your technological capabilities
  

• If you have multiple turn-key sites with excess capacity which is hampering your cash flows, some agencies may have an interest in acquiring them.  Typically, the buyer will assume or renegotiate facility lease(s), take over payroll, and pay a heavily-discounted cash value for the assets (desks, chairs, workstations, technology, etc.).
  

• A high net worth individual, a former industry executive whose non-compete has come up, or an investor group that has an affinity toward the industry may look at the situation as an opportunity to invest into an established platform and turn it around.
  

These options tend to result in heavily structured transactions with limited amounts of cash (if any at all) at closing for the seller. The due diligence process to close and fund a distressed transaction is typically accelerated by the seller who may be required to pay off defaulted debt obligations within a short period of time with proceeds from the sale. 

Knowing your options may help you avoid putting additional capital into the business, being personally liable for outstanding debt, or going through a bankruptcy process.

Michael Lamm manages M&A transactions for Kaulkin Ginsberg’s Strategic Advisory Group. Michael can be reached at 240-499-3808 or by email.

Care to Comment?