This blog post is derived from the complete article that appears in the Kaulkin Ginsberg Q1 2012 Report.
Private equity firms are expecting to increase their investment activity overall this year. The good news for business owners who are contemplating a sale is that significant amounts of investment capital have been sitting on the sidelines waiting to be deployed, and private equity professionals are eager to transact.
What can owners of ARM companies considering a sale expect from these financial-type buyers?
Today’s private equity buyout firms are not approaching acquisition targets like their aggressive predecessors. Gone are the days of hastily-pursued ambitious consolidation strategies involving multiple ARM companies. We affectionately refer to that time period – from the mid-1990s until around 2002 — as the heydays for ARM transactions. Remember OSI buying Union Corp and then shortly afterwards taking down Payco American? Prior to that time period, only a few collection agencies were acquired by buyout firms, but not nearly with that level of frequency and not typically with the intention of developing a roll-up or consolidation strategy.
Fast forward to today. The ARM industry currently has its own set of challenges that most private equity firms typically are not aware of and won’t pay attention to until they begin pursuing an acquisition target. Be prepared to proceed with caution if you’re thinking about a sale to a private equity firm. In today’s intense regulatory and economic environment, private equity firms tend to be extremely cautious, which means that the seller will inevitably spend more time and incur most costs educating the buyer, burdened with considerably more transaction risk than in the hay days of the late 1990s. Sellers should be prepared for a considerably longer and more exhaustive due diligence process. The article covers major points to be aware of and also dives into major value drivers for private equity suitors.