As Pumpkin Spiced Lattes are being replaced with Chestnut Praline and Eggnog Lattes, we are being reminded that we’re approaching the end of another year. In the accounts receivable management (ARM) industry, let’s try to look forward with cautious optimism and controlled eagerness into 2018 and beyond. Anticipated changes on the regulatory front from the Trump administration have yet to occur, but we expect that will start to change early in the New Year. Specific market segments offer ARM companies considerable expansion opportunities that haven’t existed since credit card proliferation that occurred in the decade leading up to the start of the Great Recession, nearly 10 years ago. Kaulkin Ginsberg is bullish on the ARM industry overall. With heartfelt enthusiasm we offer our M&A and ARM trend predictions for 2018 and beyond. We also encourage you to register to KG Prime for detailed information and informative podcasts from our subject matter experts that will help you finalize your own strategic plans. Membership is restricted to approved credit and ARM company professionals and there is no cost to participate.
ARM Industry Predictions
- We have seen very few successful start-up collection agencies, and virtually no startups of stand-alone debt buyers, since the U.S. economy began recovering from the greatest recession to ever impact the U.S. ARM industry. We think startups will start to reemerge in the near future for three fundamental reasons:
- As the number of years since the Great Recession increase, ARM company operators are gaining a better understanding of their own company’s operating expense structure and how to effectively capitalize their business.
- Emerging markets tend to be more willing to utilize start-up agencies to handle their collection needs, especially if the agency’s leadership team is experienced. Fintech and online commerce are areas that offer considerable expansion opportunities for forward thinking first- and third-party ARM companies.
- Under the Trump administration, we expect regulatory oversights will diminish, although this is taking a lot longer than originally anticipated.
- ARM industry trade associations, still suffering from member attrition and fewer new member enrollments, will actively pursue diversification and/or raise membership fees in an attempt to offset revenue losses. In the past, we expected that one or more of the major industry trade association mergers would occur. As we look forward, we no longer think that will happen. We do believe there will be more unit consolidation within ACA International as these groups struggle to increase membership and provide valuable resources to their members.
- Although it won’t happen in the first year of the Trump administration as originally anticipated, we envision significant changes to the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank), which was passed in response to the Great Recession a decade ago, and remains one of President Obama’s signature legislative actions during his tenure. The greatest impact to ARM companies will come if the current administration redefines the CFPB’s authority of banks and non-bank financial institutions.
- We are more confident now that federal government contracts, including the Department of the Treasury, will become one of the largest sources, if not the largest source, of new business to third-party agencies starting in 2019 and continuing for the next decade.
- Many midsize ARM companies are, once again, demonstrating sustainable revenue growth and relatively high levels of profitability after years of setbacks because of the impact of the Great Recession. We believe there will be an increase in the number of desirable ARM companies for sale starting in the second half of 2018.
- Within the debt buying sector, we believe that very few M&A transactions will occur involving U.S. private company sellers. This will continue until these companies are able to demonstrate their ability to consistently purchase debt portfolios from desirable credit grantors at reasonable prices.
- Financial-type buyers, including private equity firms and individual sponsors with financial backing, will more aggressively seek acquisitions of ARM growth companies with at least $2 million in annual normalized EBITDA across consumer, commercial, and government market segments.
- Strategic and financial-type buyers will return to the student loan market once the Department of Education selects its unrestricted contractors, now into its fourth painful year of procurement.
- U.S. ARM companies will not aggressively pursue acquisition opportunities in other countries as long as they envision considerable growth opportunities within their own market segment in this country. Instead, some will expand slowly by opening call centers in other countries and establishing joint venture relationships with established companies in other regions.
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