Today’s Value Drivers in the ARM Industry

The attributes of a selling accounts receivable management (ARM) company that typically drives a selling ARM company’s value upward:

  1. Sustainable and increasing revenue performance. Buyers will value businesses that are able to demonstrate consistent topline growth.  Some businesses grow year over year while others may plateau for a period of time before the next period of growth. Buyers can forecast either type of growth business.   
  2. Consistent profitability levels. Buyers will evaluate profitability very carefully. Some will hire an expert to conduct a Quality of Earnings assessment. Buyers want to see constant levels of profitability year after year.  They will also determine whether profits will increase under their ownership by integrating the selling business into their platform company.  High levels of profitability will also encourage a buyer to improve upon the terms of the acquisition.   
  3. Diversified revenue stream. In today’s market, more buyers are requiring a seller to show that it has a diversified client base and/or numerous service offerings. Some buyers have lowered their thresholds to selling businesses with no one client making up 10% or more of the company’s overall revenues. 
  4. Market segment appeal. Market appeal can change very quickly. For more than 20 years, a large number of buyers were fixated on acquiring healthcare ARM companies with first party and third party collection services for large hospital systems. Today, because of increased fluctuations in a seller’s financial performance, the emergence of middleware companies, and regulatory concerns regarding credit reporting medical debt that didn’t exist a year ago, fewer buyers are pursuing healthcare deals and adding more structure to their transactions. Markets including, but not limited to, financial services, property management, and commercial receivables management are favorable markets now. 
  5. Seasoned leadership team in place. In transactions involving ARM sellers, it is essential that the individuals with direct client relationships remain with the business post-closing. If the owner has critical client relationships, buyers will look to structure the transaction around client retention using earnouts or equity retention.
  6. No significant pending or past lawsuits and no CFPB investigations.  Buyers will more aggressively pursue selling companies that maintain a consistent track record of resolving frivolous lawsuits, avoiding class-action litigation and CFPB investigations.   
  7. Appropriate levels of capital expenditures. Owners who make the right investments into their business to fuel profitable revenue growth will be rewarded when they are ready to exit through a sale. 

Of course, buyers will evaluate every business differently.  Don’t hesitate to contact the team at Kaulkin Ginsberg if you want to see how your company stacks up by emailing hq@kaulkin.com.

About Kaulkin Ginsberg Company
Since 1991, Kaulkin Ginsberg Company has provided critical strategic advice to the ARM industry. Our client-centric approach covers almost every stage of a company’s life cycle and enables us to maintain longstanding relationships as trusted advisors. We provide mergers and acquisition advisory, strategic consulting, and valuation services.

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