Global Aspirations: International and Cross-Border ARM M&A Activity Gains Momentum

With the U.S. domestic market maturing, and competition also stiffening in other countries, debt collection and debt purchasing firms are eying foreign shores.

For a number of years, American creditors and agencies looking to cut costs have ventured to near-shore and off-shore locations, setting up call centers in Canada, Mexico, and the Caribbean, as well as India and the Philippines, to contact debtors in the United States. American debt collectors following clients into international markets tended to grow organically or through joint venture relationships, identifying and meeting specific client needs overseas, notes Michael Lamm, Associate at Kaulkin Ginsberg, a Bethesda, Md.-based merger and acquisition advisory firm serving the accounts receivable management industry.

However, as interest in doing business with clients based in foreign markets has increased, firms from a variety of countries, including the U.S., Canada, France, Luxembourg, Israel, Australia, and India, have favored an acquisition strategy to gain local expertise and a foothold in a foreign market. Target companies have been located in the U.S., the UK, Germany, Australia, Russia, South Africa, and Malaysia – to name a few. “As the ARM market continues to globalize, investment firms and buyers of ARM companies are becoming more aggressive in locating acquisition opportunities in other geographic markets that support greater growth potential in the coming years,” says Mark Russell, Director of Kaulkin Ginsberg’s Strategic Advisory Group.

In 2006, the ARM industry saw 20 international M&A transactions, ones where either the buyer or seller – or both — are based outside the United States. Twelve, or 60 percent, were cross-border transactions, according to data compiled by Kaulkin Ginsberg. That’s a hefty percentage compared to a nearly 36 percent ratio of cross-border M&A transactions among middle market firms in Europe and 26 percent in NAFTA countries (the U.S, Canada, and Mexico), according to recent data from the International Network of Merger and Acquisition Partners. IMAP’s numbers cover a variety of industry sectors, including automotive, food, life sciences, global energy, I.T. and electronics, as well as outsourcing and logistics.

This year the pace of international deals in the first quarter is running significantly ahead of the same period last year, when only two such deals were announced. The ratio of cross-border ARM link-ups is also high. In the first two-and-a-half months of 2007 alone, Lamm reports, seven international deals have been struck – five, or slightly more than 70 percent, with a cross-border bent.