ARM M&A: What Operational Factors Do Business Buyers Examine?

When it comes to ARM M&A, most skilled buyers arrive at pricing the same way. The buyer analyzes aspects of a seller’s financial and operational performance during due diligence. However, when it comes to pricing a particular deal, provided the selling company operates profitably and the buyer is made comfortable that the profitability level is sustainable after a change of ownership occurs, they would proceed toward closing the transaction at that set price.

Today, however, experienced buyers of ARM companies are looking beyond the profitability levels of selling companies before establishing their pricing level. This is most prevalent in the financial services sector, although we are starting to see this trend develop in other asset classes as well. Two areas in particular that are being scrutinized for ARM companies before pricing is established are gross collections and placement levels.

Gross Collections

Experienced buyers are looking closely at the consistency of client fee rates to determine variances from year-to-year and month-to-month. When client concentration levels exceed a buyer’s comfort zone, sellers should expect that some buyers may want to accelerate their diligence process by conferring with larger clients earlier in their diligence process to determine if rate cuts may be administered. Although there are no hard-set rules that pertain to all buyers, twenty percent concentration is a good rule-of-thumb.

In addition to client fee rates, buyers will also attempt to gauge liquidation performance to try to determine how consumer payment patterns have impacted gross collections. While unemployment levels and consumer confidence are slowly improving, the U.S. is still recovering from the most severe economic downturn in the history of the collection industry and buyers want to feel confident in the seller’s ability to perform.

Number of Accounts Placed

Buyers are also scrutinizing the sources of new business earlier in their diligence process to gain comfort around the sustainability of placement volumes. They are trying to determine if more accounts are being warehoused, sold to debt-buyers, or placed with collection attorneys for suit and how these trends might impact placement levels.

Additionally, buyers in the ARM M&A space are looking more closely at average account balances to determine how this has changed over recent time periods. Again, these developments are most prevalent within financial services but we’re also seeing this in other asset classes.

Selling a business can be incredibly difficult, especially if you don’t know what the other side is thinking. Putting yourself in the shoes of a potential buyer can help you position your company for the best possible deal when it comes time to sell.

Even if you consider the buyer’s perspective, however, the sale process can be intimidating. Fortunately, Kaulkin Ginsberg can help you navigate those choppy waters. We have worked with small, mid-sized, and large privately-owned companies, Fortune 500 corporations, and financial investment firms on their ARM M&A strategies for thirty years. Whether you’re seeking professional sell-side representation, assistance forming a partnership or joint venture, or a transaction assessment, Kaulkin Ginsberg will guide you through the process. For more information, or to schedule a confidential discussion of your business goals, contact us at hq@kaulkin.com.

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