Are Roll-Ups Dead in 2007? No, but They Sure are Different

My, have times changed.  It was only 10 years ago that the consolidators ran like rabid dogs through the debt collection industry. Fueled by financially well-endowed private equity firms, companies such as OSI, IntelliRisk, and RMA were formed with the sole purpose, it appeared, to acquire any large collection agency in its path. 

And buy these consolidators did. Many of the household names in collections were rapidly plucked off by these newly formed consolidators. Payco, Nationwide Credit, ABC, Union Corp, Allied Interstate, AM Miller, Legal and Trade and Equifax all were gobbled up. 

Fast forward 10 years. Are roll-ups dead in 2007?  Absolutely not and in my opinion they should not be. They sure are different though. Today, after most of the consolidators of the late 1990’s backed by private equity were overleveraged to a point of suffocation resulting in two bankruptcies and numerous forced recapitalizations or sales, a roll-up is considered a dirty word among many private equity firms. It should not be. 

Playing Monday morning quarterback, it is easy to look back now and say that roll-up strategies are flawed. At the time they were taking place, roll-ups were revered among many agency owners and private equity firms that were not participating in the strategy. The battle cry in private equity boardrooms at that time was to roll-up revenue as quickly as possible. It did not matter which industry as long as there were a lot of deals to get done. What about client overlap? Who cared? What about integration? Worry about that later. Buy! Buy! Buy! 

Today’s roll-up strategy calls for a focused approach based either in a particular geographic region or in particular market segments. Take, for example, Fidelity Capital Holdings, based in Glendale, Calif., which is expanding by acquiring California based collection agencies ("Fidelity Capital Keeps Growing with Purchase of Collection Agency," 11/2). Or what about The Outsource Group and Kadent Healthcare which are focused on the healthcare segment of the market?  

I am confident that today’s ARM industry lends itself to roll-ups. It still has the fundamental elements that private equity firms are seeking. It is large enough with over $15 billion in revenues among service providers and debt buyers. It is highly fragmented even if you include NCO and Sherman Financial. It is growing and profitable.  Management talent is clearly available if you know where to look. 

What do you think? If you were involved in a roll-up please tell us about it. The good. The bad. The ugly. We want to hear about it.