Kaulkin Ginsberg Sees Early Signs 2010 Will Be a Stronger Year for M&A Activity in ARM Industry

Rockville, MD – The estimated total deal value for 2009 mergers and acquisitions in the ARM industry amounted to $425 million – far less than the $2 billion in deal value recorded in 2008, according to Kaulkin Ginsberg, the industry’s leading M&A and strategic advisor. Despite the difference in deal value, the volume of transactions remained essentially the same; 36 deals closed in 2008 and 35 in 2009.

28 of the transactions in 2009 involved larger agencies acquiring smaller ones, or former executives getting back into the space via acquisition. These industry transactions continued to close at a steady pace despite the recession – primarily because the buyers knew what they were buying and could readily finance the transactions.  

The remaining seven transactions consisted of larger platform acquisitions and management buyouts. These larger-size transactions continued to experience a reduction in valuation multiples in 2009. “Financial buyers historically drove up the valuations of these larger companies, but starting in the second half of 2008 their valuations declined due to lack of available debt financing and increased uncertainty regarding future financial performance. Financial buyers also required sellers to accept more deal structure in the form of earn outs, sellers’ notes and/or retained equity to share in the deal risk,” noted Mark Russell, Director at Kaulkin Ginsberg.

There was an increase in the number of transactions involving some form of deal structure in 2009, but there were also all-cash transactions – mostly involving companies that outperformed the market, offered buyers substantial growth potential, or were valued appropriately for this deal structure.

2009 transaction volume was also impacted by longer M&A engagement periods. Buyers took longer to complete their due diligence and placed greater scrutiny on the seller’s financial performance, legal activity, and client growth opportunities. This caused some deals not to close as sellers changed their value expectations or buyers became uncomfortable with the results of their due diligence. The most prominent example of this was the announcement by NCO Group in early December to terminate its interest in acquiring Axiant, LLC.  

“While 2009 was a challenging year for M&A, certain trends started to unfold toward the end of the year that may indicate M&A activity is on the rise,” noted Russell.  One sign was that more than half of the total deal value in 2009, an estimated $229 million, was achieved in Q4. “As the credit markets continue to loosen, the number of large and mid-sized transactions should increase in 2010,” added Russell.

Some of the deals that would have closed in 2009 under ordinary economic conditions were put on hold by the sellers as a result of lower acquisition multiples and/or company performance. “Some of these transactions are likely to re-emerge this year, which could mean stronger deal value and volume results for 2010,” Russell noted. “Add to this trend the effects of an improving economy and 2010 should turn out to be a stronger M&A year.”

Contact:
Mark Russell
Tel: 240-499-3804
mark@kaulkin.com

About Kaulkin Ginsberg
Kaulkin Ginsberg is the leading boardroom-level advisor to the Accounts Receivable Management Industry (ARM) and has completed over 130 M&A transactions valued in excess of $3 billion. Since 1991, credit and collection professionals, owners, and investors worldwide have relied on the company for the insight, access and information needed to make well-informed decisions. Value-add consulting and M&A services cover almost every stage of a company’s lifecycle, from strategic analysis to growth and exit strategies. Sister company insideARM.com is the leader in providing timely news and perspective on the recovery of debt in all industries. For more information, visit www.kaulkin.com.