Over the past two years, we have experienced a surge in the number of commercial collection agencies being acquired. It started in April 2016 when the senior management team of Altus teamed up with private equity firms to purchase the collection division from French parent company Natixis. In 2017, they acquired Johnson, Morgan & White and Aron, Sadowsky & Marks. In April 2018, collection insurance specialist Brown & Joseph was acquired by another private equity firm, Lasalle Capital. Today, global commercial receivables management firm ABC-Amega announced that it acquired longtime player SKO Brenner American.
A half dozen transactions in a particular segment of the accounts receivable management (ARM) industry doesn’t amount to too much activity when compared to the dozens of deals done during the heydays of private equity buying ARM companies in the late 1990s and early 2000s. However, the amount of recent activity involving some of the largest commercial collection agencies in the U.S. is meaningful and worthy of attention. The last time a string of commercial collections were acquired was in 2007 when international credit reinsurance companies such as Coface purchased Newton & Associates and Euler Hermes acquired old-time players United Mercantile Agencies.
Why the increased attention in acquiring commercial collection agencies? We believe this interest already existed for years and is not new. Private equity firms have been seeking to acquire commercial agencies for a long time. In the Altus and Brown & Joseph transactions, they were able to invest in companies that had the size needed for their fund requirements. Most private equity firms are seeking to buy companies with at least $2 million a year in operating income. Some have significantly higher requirements.
The commercial sector also attracts interest from financial suitors because of the perceived stability in servicing business to business clients when compared to consumer focused agencies, which make up the vast majority of the ARM industry. In the case of ABC-Amega’s purchase of SKO Brenner, they saw a tremendous opportunity to expand their own platform by acquiring and integrating a market leader.
Going forward, we believe there will continue to be interest among these, and other, commercial agency buyers seeking to enter, or expand within, this market segment. The challenge will be to find the right companies to buy at the right price and deal terms. The commercial sector is considerably smaller than the consumer and government segments of accounts receivable.
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