Recap of Q2 2002 Collection & Call Center Industry M&A Activity

Each quarter, Mark Russell, Associate at Kaulkin Ginsberg Company, summarizes recent M&A deals that involve middle market companies in the Debt Collection/Accounts Receivable Management, Marketing Services/Direct Mail/Fulfillment, and Call Center Management/CRM industries. The following is the recap for Q2 2002.

Debt Collection/Accounts Receivable Management

10 deals were announced during the 2nd Quarter and the month of July. 5 of these deals have been highlighted due to their significance, and the trends that they represent in the Accounts Receivable Management (ARM) industry.

On July 24th, the ARM industry received a gigantic wake up call when West Corp (NASD:WSTC), an Omaha, NE based publicly traded outsourced call center company, announced its intentions to acquire Attention, LLC, an Atlanta, GA based debt collection agency. Kaulkin Ginsberg Company served as the M&A advisor to West during this transaction. West, recognized as a market leader in the outsourced customer relationship/call center industry, hired our firm to assist them in developing and executing an effective M&A strategy to locate the right partner in the ARM industry. Because a significant portion of West's revenues is derived from outbound telesales activities, the transition into the ARM industry was a natural choice. This transaction illustrates the convergence between outsourced call center and ARM, a trend that Kaulkin Ginsberg predicts will exist for the next couple of years. Under the terms of this agreement, West Corp. will pay the shareholders of Attention, LLC $40 million in cash up front, including the assumption of $5 million in debt, plus future payments of between $21.5 and $50 million, depending upon the performance of the company over the next 4.5 years. Attention, LLC, started in 1999 by Jim Richards, provides ARM services to the healthcare, financial services, credit card, automotive and retail industries. Attention supports roughly 400 employees in three facilities, and is expected to produce between $25-30 million in revenues in 2002.

Another notable deal was announced in July by Intrum Justitia, a publicly traded Netherlands based collection agency. On July 16th, Intrum announced its intentions to acquire Stirling Park, a debt collection agency located in Scotland. This transaction will enable Intrum to enter the Scottish market. Intrum has offices in over 20 European countries, positioning itself as the industry leader in the European market. Stirling Park, originally established in 1924, supports 108 employees in 6 offices located throughout Scotland. They are currently generating roughly $7 million in annual revenues, and represent 27% of the government collections market. This is Intrum's first acquisition since conducting an IPO in June, 2002.

On June 27th, CompuCredit Corporation, an Atlanta, GA based credit card company, agreed to acquire $1.2 billion of receivables from Fingerhut Corporation, a subsidiary of Federated Department Stores, Inc. (NYSE:FD). This transaction also included the assumption of $450 million of receivables-backed debt issued by Fingerhut Master Trust. As part of this transaction, CompuCredit will acquire the debt collection assets of Fingerhut located in Monticello, MN, including two receivables management facilities with over 800 employees. CompuCredit represents a new type of strategic buyer entering the ARM industry.

On May 15th, Carma Financial Services Corporation (YCM - CDNX), a publicly traded company on the Canadian stock exchange, announced its intentions to divest its consumer collection division to CBV Collections, a Vancouver, BC, based collection agency. Carma is divesting this business to focus more on its core service offerings. The purchase price is $1.06 million, paid out over 12 months.

As previously noted in the 1st Quarter bulletin, Outsourcing Solutions, Inc. (OSI), a St. Louis, MO based receivables management corporation, and ChrysCapital, an Indian-focused venture capital fund, announced their joint investment into a new entity called Global Vantedge, an Indian-based receivables management firm, on April 13th. This transaction symbolizes a growing trend in the collection industry - U.S. based collection agencies looking at offshore options to reduce labor costs and minimize employee turnover. OSI invested $1 million alongside ChrysCapital's $7 million investment, representing a combined 80% ownership of Global Vantedge. The remaining 20% will be owned by management, and by employees through stock option programs. OSI will gradually migrate several hundred employees' worth of business to Global Vantedge over the next 12-24 months.

Marketing Services/Direct Mail/Fulfillment

5 notable deals occurred during the 2nd Quarter and beginning of July.

On April 12th, Aegis Communications Group (NASD:AGIS), an Atlanta, GA based outsourced call center company, announced the divestiture of its marketing research division, Elrick & Lavidge (E&L). Taylor Nelson Sofres, plc, a European based marketing research firm recognized as the 4th largest market research company in the world, was the acquirer. Taylor Nelson paid $12 million in cash. At the time of the transaction, E&L was producing $22.9 million in annualized revenues.

A second notable deal was announced on May 1st, when Cortec Group, a financial buyer based in New York City, NY, agreed to acquire DRL Holdings, Inc., a marketing services company based in Edison, New Jersey. DRL Holdings will operate as a portfolio company under Cortec Group's Fund III.

Three notable deals were announced on June 5th and 6th by priNexus, Inc., an Atlanta, GA based marketing services company that is a portfolio company of Harvest Partners, a New York based private equity firm. PriNexus, Inc. acquired Color by Pergament on June 5th, a New York based company that provides specialized digital and production services. On June 6th, priNexus acquired Direct Fulfillment and Direct Group, both based in New Jersey and owned by Manny Ortiz. Direct Group provides direct marketing services to the financial services, healthcare and telecommunication industries. The three transactions combined totaled $91 million. Harvest Partners provided the capital necessary to complete these transactions.

Call Center Management/CRM

2 notable deals were announced in the 2nd quarter.

In the beginning of April, Citigroup Private Equity Fund invested $20 million into Progeon Ltd, a division of Infosys Technologies, Ltd, based in India. Progeon provides inbound and outbound call center services. Progeon, valued at $75 million at the time of the investment, is now valued at over $100 million.

On June 28th, Convergys Corporation (NYSE:CVG), a Cincinnati, OH based outsourced billing and customer service management company, announced the sale of its Swedish call center operation to Ingroup, a Swedish based outsourced call center company. Convergys felt that a local company would better serve the call center operation. Terms of this deal were not disclosed.

If you have any questions regarding the information provided in this section, please contact Mark Russell at 301-907-0840 x120 or by email at mark@kaulkin.com.