2008 M&A Activity in the Debt Collection Industry on Target to Exceed 2007 Results

The combined deal value of mergers and acquisitions in the debt collection / accounts receivable management (ARM) industry could exceed last year’s $1.65 billion, according to Kaulkin Ginsberg, the leading strategic advisor to the industry. Despite the fact that only five M&A transactions closed in the second quarter of 2008, the estimated total deal value for the first half of the year is $1.43 billion.

“At the end of last year, we predicted that transactions in the ARM industry would exceed 2007’s total deal value based on pending transactions we were watching in Europe,” said Michael Lamm from Kaulkin Ginsberg. “This is indeed playing out.”

The largest transaction of the quarter was Investor AB’s 50 percent purchase of a leading Norwegian debt collection company, Lindorff Group, for US$558 million. This meaningful investment positions Lindorff to capitalize upon significant expansion opportunities within other European markets.

Other notable second quarter transactions involving European debt collection companies include UK-based Exponent Private Equity LLP’s acquisition of Lowell Holdings Limited, a British debt purchasing company, for US$394 million; and the acquisition of Canada-based Eastern Collection Services Ltd. by the Iceland subsidiary of large European ARM company Intrum Justitia. This transaction marks Intrum Justitia’s entry into North America

“We expect increased interest in North American debt collection firms from European buyers, especially into the U.S. market,” noted Lamm. “Some European companies will seek to leverage additional value from favorable exchange rates. Plus, acquisition multiples being paid for U.S. ARM companies have been generally lower than their European counterparts.”

Recently announced mergers and acquisitions in the U.S. include the acquisition of New Mexico agency Collectrite, Inc. by CreditWatch Services, a debt collection agency based in Texas; and the acquisition of MuniServices by Portfolio Recovery Associates (NASDAQ: PRAA) to expand their presence in the government collections arena. The latter deal officially closed on July 1st and is incorporated into the third quarter results.

“We anticipate that the number of actual closings will increase in the second half of the year,” said Lamm, adding that Kaulkin Ginsberg predicts a round of consolidation in the debt purchasing sector of the accounts receivable management market. With financing more challenging for some debt buyers to secure, and liquidations down as consumers fend off rising food and gas prices, some debt buyers are seeking to recapitalize their businesses and may merge into larger, well-capitalized debt buyers.

For the rest of 2008, Kaulkin Ginsberg expects more M&A activity to come from large ARM companies – particularly those that are private equity backed – seeking strategic acquisitions to facilitate growth. “This is a great time for well-capitalized ARM companies to increase market share through strategic acquisitions,” said Lamm. Private equity firms will also add to the M&A activity in the second half of 2008, seeking to capitalize on the long term trends of increased consumer debt, increased outsourcing to ARM companies, and abundance of debt portfolios available for sale at favorable prices.