M&A Activity Reaches All-Time High in Debt Collection Industry -- Debt Purchasing Sub-sector Leads the Way in Q304

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The accounts receivable management industry has never seen more merger and acquisition activity than in the first three quarters of 2004. And the year is not over yet.

The accounts receivable management industry has never seen more merger and acquisition activity than in the first three quarters of 2004. And the year is not over yet.

Already, nearly $1.3 billion has changed hands in industry transactions, including more than $500 million from 17 deals announced in the third quarter alone. This represents a 28% increase from last year’s total of $940 million. The previous high mark for industry M&A deal value was $1.2 billion which occurred in 1999 before the downturn in M&A and the economy.

This active deal environment is fueled by increased confidence in the economy, the continued rise of consumer debt, greater access to capital to finance transactions and strong performance by many visible, and a few public, industry players. The strategic acquisitions in 2004 have been particularly noteworthy. As more business process outsourcing (BPO) and related firms look to different sectors for growth, debt collection has become an increasingly attractive addition to their stable of services.

Advisory firm Kaulkin Ginsberg Company, a specialist in the accounts receivable management industry, recently announced a deal between Indian BPO firm ICICI OneSource (a unit of ICICI Bank Ltd, NYSE: IBN) and U.S.-based collection agency Account Solutions Group, marking the first time an India-based firm has acquired a collection agency to establish a US footprint. ICICI One Source sought to expand its services and add a US presence and debt collection was considered a perfect fit. Ananda Mukerji, Managing Director & CEO, ICICI OneSource, said of the deal, “The acquisition is in line with our strategy to aggressively expand our service offering and continuously deliver value to our clients. We have identified collections as a high growth area and this acquisition gives us a platform from which to offer the most complete collections solutions to our clients.”

In August, diversified CRM firm West Corporation (NASD: WSTC) acquired Worldwide Asset Management, a sizeable debt purchasing and contingency collection agency, in a $178 million deal. When added to its 2002 acquisition of Attention LLC, West now has a significant presence in the debt collection industry. Similarly, West’s strategy to move into collections was client driven but was also an effort to maximize the use of its assets (technology, offices and staff) which are very similar to those of collection agencies.

In September, student loan behemoth Sallie Mae bought a majority interest in Arrow Financial Services, a large debt purchasing and collection firm. Sallie Mae entered the accounts receivable management industry a few years earlier with the acquisition of two student loan agencies. This acquisition positions Sallie Mae as one of the largest collection entities and debt purchasers in North America. This deal and the West-WAM deal underscore the interest in collections and in particular, the debt purchasing industry.

Will this level of activity continue through the rest of the year and into 2005? Kaulkin expects that 4th quarter closings will slow due to the holiday season and based on its knowledge of the market, but sees strong activity in the first quarter of 2005 for both US and international deals. “We believe that M&A will be a continuing trend in the industry,” said Michael Ginsberg, CEO and President of Kaulkin Ginsberg Company. “From all of our conversations with owners and investors around the industry, we fully expect this level of interest in collection agencies to continue well into next year and beyond.”

About Kaulkin Ginsberg

Since 1989 Kaulkin Ginsberg has provided solutions to accounts receivable management and other business services industries. Through our SAGE program (Strategic Analysis, Growth and Exit), we work with owners and executives in their efforts to grow or exit their business. Our services include merger, acquisition and valuation advice, research, growth and operational consulting as well as training and executive search services.

Kaulkin Media publishes CollectionIndustry.com and Credit & Collection Daily, and is the leading source of industry information. Kaulkin Partners, our sales and marketing group, is the leading source of cutting edge technology for creditors and collectors. Lastly, Kaulkin Information Systems creates secure and affordable online document imaging and retrieval technology for credit grantors, agencies and debt buying companies. Read more about Kaulkin Ginsberg at http://www.kaulkin.com.

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