The mergers-and-acquisitions market in the accounts receivable management industry reportedly was active in the second quarter, according to a news release by Kaulkin Ginsberg, an industry M&A and strategic advisory firm.
In Q2, 11 transactions occurred with a total deal value estimated at $550 million – compared with only nine deals that generated $143 million in the same quarter last year.
Four large transactions generated 95% of the deal value, including three completed by strategic and financial buyers. Announced transactions include: Philadelphia-based Radian's divestiture of its entire stake in Sherman Financial for $172 million in cash; Aditya Birla Minacs’ acquisition of Bureau of Collection Recovery (terms were not announced); and Duke Street Capital’s recapitalization of Marlin Capital in the UK.
Still, the majority of transactions are still being completed by industry buyers, as evidenced by Q2 results in which eight out of 11 deals were either management buyouts or larger ARM companies acquiring smaller ones.
"M&A activity certainly picked up this quarter and we see this trend continuing for the remainder of the year," according to Michael Lamm, associate at Kaulkin Ginsberg. "There is a greater level of seller and buyer interest, but buyers are still concerned about the sustainability of future liquidation performance and how a double dip recession may impact the ARM industry."
With the continued economic uncertainty, Lamm expects buyers will continue to use deal structure (earn-outs, retained equity, seller’s notes) to mitigate their risk and bridge valuation gaps with sellers.
Looking ahead to the rest of 2010, Lamm believes that the two key factors impacting M&A activity in the industry will be changes in client business volumes and unemployment rates.
"We need sustainable job growth/creation to stabilize our economy and make credit issuers more willing to originate debt," he says.
Lamm also expects capital gains to increase in 2011, which will drive some ARM companies to consider an exit before year-end rather than be faced with a bigger tax bill in 2011.