2002: The Second Busiest Year in Accounts Receivables Management Deal Activity; Kaulkin Ginsberg's look at the year shows 2002 deal activity returns to level of 1998/99.

Business Editors

BETHESDA, Md.--(BUSINESS WIRE)--Feb. 5, 2003

Kaulkin Ginsberg today announced that with 55 deals completed in 2002, the year was the second busiest ever in Accounts Receivables Management (ARM) deal making activity. Kaulkin Ginsberg, a provider of advisory services to the ARM industry, is the only organization to track the details of deal activity in the market every year since 1991.

Deal activity near record highs

Kaulkin Ginsberg noted that deal activity in 2002 was nearly as high as during the 1998/99 period of consolidation. Deal volume in the 2nd half of 2002 as compared to the 2nd half of 2001 is up by almost two and a half times.

"With 55 deals taking place in the industry during 2002, there is clearly strong interest in the accounts receivable space right now. As the stock market remains a risky place in which to invest, financial investors are seeking out more stable, long term investments, and ARM has proven to provide solid financial returns in both upswings and downturns of the economy," said Michael Ginsberg, Kaulkin Ginsberg president and CEO.

Financial investors are back

A look at the 2002 deal activity shows that financial buyers are back in the ARM market in force. After conducting only two transactions that represented less than 1% of total deal value in 2001, in 2002 financial buyers generated 11 deals and 39% of total deal value! As a group, financial buyers were second in deal volume to existing industry buyers (37 deals), but equal to industry buyers in total deal value produced during the year.

Investors became enamored with the debt purchasing industry, which captured around 30 percent of the total deal value in 2002. Bank card/credit card collection industry was second with 27 percent, and the credit bureau/reporting industry was third with 22 percent.

Ginsberg noted that strong companies in the ARM sector are still attracting a lot of buyer interest, competitive prices and deal structures. Among the notable financial deals was Parthenon Capital's $45 million August investment in debt purchasing company Arrow Financial. And Portfolio Recovery Associates' November IPO, which has a stock price now up more than 45 percent, is a remarkable showcase of a successful IPO in a tough IPO climate.

"We have not experienced a softening of purchase price in 2002 for profitable and growing ARM companies as compared to previous years, contrary to a common belief in the marketplace," said Ginsberg. "However, financing transactions can still be a challenge, especially for financial buyers."

Strategic investors getting in on the action

Strategic and financial buyers combined produced a majority of the deal value in 2002 - 61 percent, compared to only 30 percent combined in 2001.

"We anticipate that strategic and financial buyers will continue to play a significant role in deal activity in 2003 due to the strong ROI generated by the ARM industry," said Brian Greenberg, Kaulkin Ginsberg managing director. "While merger and acquisition activity is down across most sectors, in ARM it is particularly robust."

Interest from strategic investors was highlighted in July when West Corp., one of the largest Client Relationship Management (CRM) companies in the United States acquired Atlanta-based Attention, LLC. This deal illustrates the convergence between the ARM and CRM industries, a trend Kaulkin Ginsberg predicts will continue over the next few years.

Also notable were SLM's (Sallie Mae) January acquisitions of Pioneer Credit Recovery and General Revenue Corporation, which marked the dominant student lender's expansion into the ARM industry.

Industry deals: Activity among small and large entities

While the number of strategic investors has continued to steadily increase, so too have the number of industry investors - collection agencies and debt buyers. The number of industry deals skyrocketed to its highest level ever in 2002.

"Central to industry developments is the growing number of smaller agencies selling to newer entities in the market, a trend Kaulkin Ginsberg first noted in 2001 when it created a service, The Business Exchange, within the portal site CollectionIndustry.com. This service was designed to assist owners of small agencies under $1 million in annual revenues who are interested in selling their companies," said Greenberg.

Indicative of the trend was the November formation of Patriot Financial, a collection agency formed by two industry veterans who say they intend to grow by acquiring independent "turn-key" collection agencies in strategic locations and continue the operations uninterrupted under the Patriot name.

Another important industry acquisition occurred in August when NCO Group and NCO Portfolio Management, Inc. jointly announced the $33.6 million acquisition of GE Capital's subsidiary, Great Lakes Collection Bureau, Inc., and its owned debt portfolio of credit card accounts.

"Such a high level of industry investment suggests we may be seeing a second wave of consolidation," said Ginsberg. "While most of the larger agencies cannot merge because of client overlap, we predict that each of the large agencies will complete at least one transaction over the next eighteen months. Some will acquire smaller specialty agencies, debt buyers, or expand into the related Client Relationship Management industry, while others may go public or exit the business through a sale."

About Kaulkin Ginsberg

Since 1989, the Kaulkin Ginsberg team has provided industry-leading information, expertise, and advice to the Accounts Receivables Management/Client Relationship Management and other business service industries. Kaulkin Ginsberg has the unique expertise and relationships that come from advising on more than 85 ARM transactions that have produced more than $2 billion in total deal value for a variety of family, private equity and public owners.