Q3 M&A Activity Sets New Record in the Accounts Receivable Management Industry

After a slow start in the first half of the year, 2005 M&A activity kicked into high gear in the Accounts Receivable Management (ARM) industry thanks to a dramatic spike in third quarter transactions that produced $1.14 billion in total deal value, the largest amount of deal value ever recorded in a quarter. So far this year, total deal value is at $1.58 billion. Based on the timing of when pending deals in the market close, the total deal value for 2005 could exceed last year's record-breaking results of $1.6 billion.

"Today, industry players, financial investors, and strategic buyers are all actively seeking out opportunities in the ARM space, both domestically and abroad," said Mark Russell, Senior Associate at Kaulkin Ginsberg Company. "Players seeking to enter the ARM industry with platform investments are offering aggressive deal terms for ARM companies that have strong management teams, blue chip clients, distinct competitive advantages, and substantial growth opportunities."

High transaction values and competitive deal structures can be attributed to an economic "sweet spot" in the ARM industry. Declining unemployment, rising inflation, and increasing interest rates all create favorable conditions for the ARM industry. With low capital gains taxes, access to relatively cheap debt, and an excess of cash reserves in corporate balance sheets and investment funds, optimal conditions exist for buyers to continue their robust deal activity in this and other industries.

Industry players like NCO Group (NASDAQ: NCOG), Encore Capital (NASDAQ: ECPG) and Germany-based EOS Group all completed acquisitions in the third quarter. In early August, Portfolio Recovery Associates (NASDAQ: PRAA) also announced the purchase of Alatax, Inc., a privately held company that specializes in government receivables management.

Strategic and financial buyers like Citigroup Venture Capital International (NYSE: C), Sallie Mae (NYSE: SLM) and KRG Capital established or enhanced their ARM position in Q305. In late August, a private equity investor purchased a minority stake in Resurgence Financial, LLC, an Illinois-based debt purchaser. The valuation was derived using factors including a fair market multiple of adjusted earnings. "In today's market, debt-purchasing companies with a sustainable business model are being valued in many cases as a going concern, rather than just based on the current value of their portfolios under management," said Russell.

With more buyers in the marketplace today, there is increased competition to acquire good companies. Looking forward to the remainder of 2005 and early 2006, Kaulkin Ginsberg expects to see continued interest in debt purchasing companies and contingency collection agencies from industry, financial, and strategic buyers.

A comprehensive wrap-up of Q305 M&A deals will be published in the November issue of The Kaulkin Ginsberg Bulletin, which is expected to hit the market during the week of October 24th. To read the Bulletin online, please visit: http://www.kaulkin.com/newsletters/bulletin.

About Kaulkin Ginsberg Company
Since 1989, Kaulkin Ginsberg has provided solutions to accounts receivable management and other business services industries. Through the SAGE program (Strategic Analysis, Growth, and Exit), they work with owners and executives in their efforts to grow or exit their business. Services include merger, acquisition, and valuation advice; research, growth, and operational consulting; as well as training and executive search services. Kaulkin Media publishes CollectionIndustry.comä and Credit & Collection Dailyä, and is the most popular source of industry information. Kaulkin Partners brings the latest technology to creditors and collectors. Read more about Kaulkin Ginsberg at www.kaulkin.com.

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