Mergers & Acquisitions by Brian Greenberg, Greenberg Advisors
Are investors still investing in ARM firms, even in this economy?
The short answer is, Yes. This year’s ARM industry deal volume is only down by about 20% compared to last year, according to the M&A data that we track. That means that deals in ARM are still being completed, with strategic and financial investors continuing to find value in, and make investments in, ARM firms. The big difference, and the one that makes the headlines, is the fact that the deal value (ie. Aggregate valuation of deals year-to-date) is substantially down. In fact, it is down about 90%.
The gap between volume and value is reflective of the size of the deals and the circumstances surrounding the deals. Specifically, a difficult liquidation environment for many ARM firms has resulted in an increasing number of distressed ARM firms seeking outside investment. Our data shows that approximately 35% of all ARM transactions through November 2009 involved sellers of distressed/declining firms. Logically, when a firm is distressed, it won’t command a premium valuation, thus valuations on balance have been down. The other side of the coin is, of course, that situations such as these are the very reason behind much of the investor/buyer interest. They are seeking opportunities to invest into or acquire companies that still have value, but are mired in unfortunate financial circumstances. They may seek to acquire good clients, services, technology, infrastructure, or any number of other attributes.
Still, not all transactions involve troubled companies. Good transactions with growing, profitable companies still occur, though they are certainly less frequent. One recent example, and one in which my firm was involved, was the December 2009 acquisition of National Asset Recovery Services (NARS) by HIG Capital and Reprise Management Group. Headquartered in St. Louis, Missouri, NARS provides ARM and BPO services and has been growing year-over-year, despite the economy. Making it further attractive is the fact that NARS has a unique on-shore and near-shore delivery platform, offers niche 1st party and other services to major credit grantors, has achieved significant scale, and is very well managed by a young but experienced team.
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