4th Quarter M&A Activity-Outsourced Business Services Sector

BETHESDA, MD ? The Outsourced Business Services Sector includes cash flow-oriented enterprises that offer professional, third party services to the public or private sector. This article summarizes M&A deals that involve middle market companies in the following industries:

· Debt Collection/Debt Purchasing

· Direct Marketing/Direct Mail/Fulfillment

· Call Center Management/CRM

· Credit Reporting

The 4th Quarter of 2001 showed one of the worst performances for M&A activity in the past decade. However, there were still some significant deals that were accomplished in the outsourced business services sector. For the most part, these deals were completed by strategic and industry buyers who executed transactions designed to increase shareholder value. If you would like to learn more about how Kaulkin Ginsberg Company can assist you in developing your strategic M&A plan, please contact Mark Russell at 301-907-0840 x120 or email Mark@Kaulkin.com

Debt Collection/Debt Purchasing
Four notable deals were announced during the 4th Quarter of 2001. The first announcement was on October 10th, when Pointshare Corp. announced a management buyout (MBO) of its subsidiary, SearchAmerica, Inc. SearchAmerica is located in Maple Grove, MN, and provides internet-based skip tracing and related services to its collection agency and medical institution client base. Pointshare Corp., based in Bellevue, WA, originally acquired SearchAmerica back in August 2000 as part of its acquisition of MedServe Link, Inc. Pointshare agreed to divest SearchAmerica because it believed that the customers and employees would be better served by the new ownership.

On December 12th, Collection House Limited (CHL) announced the acquisition of an additional 36 portfolios totaling $300 million in value during the 4th Quarter. This brings their total to 72 portfolios valued at $1.2 billion. CEO John Pearce was quoted as saying “purchasing debt is an operational focus of CHL.” This philosophy may become more of a trend among contingency collection agencies that are seeking to reduce their dependency on client relationships for future revenue growth.

The final deals announced in the 4th Quarter and beginning of 2002, were done by one of the most talked about debt collection agency buyers of the year. On December 20th, Sallie Mae (NYSE:SLM) announced its intentions to acquire Pioneer Credit Recovery, an Arcade, NY based debt collection agency that provides loan delinquency and default services to the U.S. Department of Education, the U.S. Department of Treasury and hundreds of other clients. In 2001, Pioneer had approximately 350 employees. Sallie Mae used the Pioneer acquisition to entrench itself into the student loan debt collection market. Sallie Mae closed the Pioneer deal on January 2, 2002, and quickly followed with a second announcement on January 15, 2002 regarding their planned acquisition of General Recovery Corporation (GRC), the nation’s largest university-focused collection agency. Headquartered in Cincinnati, OH, GRC has roughly 450 employees. Sallie Mae was expecting the deal with GRC to close at the end of January. With GRC and Pioneer, Sallie Mae has become a market leader in the student loan debt collection industry.

Direct Marketing/Direct Mail/Fulfillment
On November 19th, Harte-Hanks, Inc. (NYSE:HHS) announced its intentions to acquire Sales Support Services, Inc. (SSSI). Harte-Hanks is a market leader in the direct marketing industry. SSSI provides b2b lead generation, order processing and fulfillment services to the automotive, energy and other industries. Considered a strategic acquisition, Harte-Hanks selected SSSI to further expand its client base and service offerings to the automotive and energy industries.

Call Center Management/CRM
Four noteworthy deals were announced in the 4th Quarter. On October 2nd, Amdocs Limited (NYSE:DOX) announced its intentions to acquire Nortel Network’s (NYSE:NT) Clarify division for $200 million in cash. Headquartered in Chesterfield, MO, Amdocs Limited has 41 offices and close to 7,000 employees worldwide that provide customer care, billing and order management systems to the communications industry. Located in San Jose, CA, Clarify provides clients with front office CRM and e-Business solution applications that simplify the e-business sales, marketing and service initiatives. Amdocs acquired Clarify to become the world’s leading provider of CRM capabilities to the communications industry; this deal was completed on November 28th.

On October 15th, Trasent Technologies announced that it had acquired Webtone Technologies’ call center assets. Trasent Technologies is located in Atlanta, GA, and provides telemarketing, customer care, email marketing and related services to its client base. Trasent opened its doors in December 2000 and has just recently signed up its 10th customer. Trasent acquired Webtone’s Atlanta call center assets to supplement its expansion needs.

On October 26th, Solectron Corporation (NYSE:SLR) announced the completion of its acquisition of Stream International, Inc. Solectron is based in Milpatas, CA, and is one of the market leaders in the electronics manufacturing and supply-chain management services industry. Stream International, headquartered in Canton, MA, provides a fully integrated suite of email, live chat, voice and self-help solutions to clients in the technology and e-business industries. Stream employs over 10,000 people and has 22 customer contact centers worldwide, which produced $300 million in revenues in 2000. Solectron acquired Stream to become one of the world’s 10 largest providers of CRM outsourcing services.

On December 31st, West Corporation (NASDAQ:WSTC), arguably the world’s market leader in the outsourced call center industry, announced its intentions to acquire Tel Mark Sales, Inc. This is the first acquisition that West has made in its company history. Tel Mark Sales, based in Appleton, WI, has two call centers that make sales calls for clients in the consumer packaged goods and health care industries. West is using this acquisition to diversify its client base and take advantage of future growth opportunities. Tel Mark employs 500 people and is expected to produce approximately $25-30 million in sales in 2002.

Credit Reporting
On October 29th, Experian Ireland acquired Interface Business Information (IBI), a subsidiary of French & Associates. Located in Ireland, IBI is a business information provider. This acquisition compliments the previous acquisition of ITPA in 1998 by Experian Ireland, and positions Experian to become the leading business information provider in Ireland.

On December 19th, Experian announced a strategic equity investment into Twenty-Ten Inc., a provider of CRM applications that help clients to more accurately predict profitable consumer behavior at the individual level.

These two acquisitions are evidence that the credit reporting industry is diversifying its services to incorporate tools that support a client’s CRM needs. We anticipate this trend of merging credit reporting and CRM application providers to continue in 2002.