Developing Trends in ARM Will Influence Mergers and Acquisition Activity in the Second Half of 2014

Mike Ginsberg

Many owners of ARM companies are contemplating whether to hunker down and focus on running their business or whether the time is right to sell their company.

As we approach the second half of 2014, here are some big picture trends that are sure to influence some owners’ decision making process:

1. The long awaited and highly coveted US Department of Education contract will finally be awarded after months of anticipation. Those agencies on the receiving end will inevitably attract interest from large industry players who were left out and non-industry buyers tracking the explosive growth of student loan debt, up by about 312% over the past 10 years.
2. The CFPB will not release their findings from audits of ARM companies they conducted over the past 18 months. Owners and investors alike will be forced to wait longer to determine what impact regulators will have on these businesses and the market in general.
3. The flurry of large debt buying acquisitions in Europe by US debt buyers  will be replaced by US ARM companies making moves closer to home. First, expect to see more transactions involving small and mid-size debt buyers divesting their portfolios to larger debt buyers. However, sellers will have to produce nearly complete data in order for industry buyers to satisfy the needs of the CFPB when purchasing debt portfolios in the secondary market. Second, expect to see an uptick of debt buyers that are not also servicers acquire stand-alone collection agencies to comply with anticipated regulatory requirements and client demands.
4. Expect to see more acquisitions of U.S. ARM companies focused on local market segments such as government and healthcare and more mergers announced between collection law firms battling escalating operating costs and increased pressure from large clients to expand (see my recent blog focused on collection law firm M&A developments).
5. We expect an uptick in deals involving healthcare ARM companies as players continue to position themselves to service the escalating needs and increased volume of business from healthcare providers. The acceleration of not-for-profit systems and for-profit systems merging will lead toward more hospitals reducing the number of agencies they use in favor of larger, multi-faceted operations shops offering a wide range of AR and revenue cycle services across a larger geographic footprint. This will fuel consolidation among service providers.

How is your business positioned in today’s market? Please let me know if you want to confidentially discuss your interests.