2021 M&A Update: ARM (Accounts Receivable Management)

Greenberg Advisors, LLC (GA) is an independent investment bank providing world-class M&A and strategic advisory solutions to Accounts Receivable Management (ARM), Revenue Cycle Management (RCM), and Healthcare Information Technology (HCIT) owners, investors, and executives. Specializing for over 25 years in these sectors, the firm’s professionals have completed over 140 engagements.

The M&A Update is GA’s flagship publication analyzing trends, transactions, and key data points from M&A activity in the ARM sector. The foundation of the M&A Update is GA’s proprietary database of M&A transactions containing thousands of data points and unique variables. By pairing our data with insight gathered through the firm’s active M&A practice and its relationships with owners and investors, we have an unparalleled market perspective, some of which is reflected in the M&A Update.

For more information, please visit www.greenberg-advisors.com or contact Brian Greenberg at [email protected] or via LinkedIn.

2021 deal value soared to $1.5 billion, its highest level since 2018.

Driven by low-cost capital and investor appetite, M&A activity in ARM nearly doubled that of the prior year. The year’s activity was further fueled by concern over a potential capital gains tax hike, which still hasn’t occurred (as of this printing), but which prompted many shareholders to at least consider selling.

In this edition of the M&A Update, in addition to our customary walk-through of the deal activity, we’ll address things like technology’s impact on the ARM industry, the industry’s most active acquirer, and of course, Regulation F (Reg F), to name a few.

Greenberg Advisors was fortunate to have had an exceptional year, completing seven transactions in 2021 and nearly 15 transactions since 2020. We also added a few new team members and promoted some of the best M&A talent in ARM to new roles. Most importantly, we delivered on the trust that each client placed with us. We appreciate it and will never take that lightly.?

So, let’s get into it…

Key Takeaways

1. Deal Value and Volume

Total deal value reached its highest level since 2018. A few transactions in particular made an outsized contribution to this growth, namely TDR Capital’s acquisition of Arrow Global and Transworld Systems Inc.’s acquisition of Account Control Technology Holdings, Inc. (ACT Holdings). Also noteworthy is the fact that strategic buyers (mostly private equity-backed) completed 78% of all transactions, which is their highest level since 2016.

2021 also brought with it the industry’s first IPO in quite some time, with LiveVox Holdings, Inc., a cloud-based provider of customer service and digital engagement tools, completing a business combination with Crescent Acquisition Corp, a publicly traded special purpose acquisition company (SPAC), on June 18, 2021. While not included in our statistics for the year given that the company doesn’t provide collection or related services, its uniqueness and relationship to the ARM industry deserves to be noted.

2. The Last Consolidator?

Consolidators have come and gone in the ARM industry for as long as we’ve been advising in ARM transactions (ahem, uh, the mid-90’s). Some succeeded but certainly many have failed. It’s great to see that one group, Transworld Systems Inc. (TSI), still sees the value in a good ole fashioned consolidation play. TSI, backed by private equity firms Clearlake Capital and Platinum Equity, was the most active ARM acquirer in 2021, announcing three transactions.?

3. Hold Periods

From 2015 to 2020, 14% of all ARM transactions involved private equity exiting an ARM investment. For these exits, the average hold period (i.e. the length of time the private equity firm was invested in the company) was 5.8 years. In 2021, there was only one private equity exit, the lowest volume since we began tracking the statistic.?

There are many potential reasons that could explain this lower volume of exits, but for now, we view this as just one data point, somewhat of an anomaly, and not (yet) a trend. Generally speaking, before exiting, financial sponsors seek to execute on their investment thesis, which can include enhancing the business’ scale and / or improving operating efficiencies, for example. It’s possible that the impact of the pandemic prolonged those initiatives, but we’re not yet certain that this is the primary factor contributing to the decreased exit volume.?

The topic of hold periods is something we’ll continue to watch and is clearly tied to the economy and the financial markets.?

4. Tech Takes Off in ARM

The ARM sector used to be a low-tech space. While the tools have become more sophisticated over time, things have really taken off in the past few years. This is based, in part, on new regulations like Reg F, changes in debtor communication preferences, and client requirements. The availability of capital and the need to deploy it are additional contributing factors. As a result, predictive analytics, workflow optimizers, cloud-based engagement platforms, and a plethora of other tools utilizing artificial intelligence and machine learning, for example, have flooded the industry. Since companies like LiveVox and TrueAccord arrived as technology disrupters in the ARM industry, many have followed and more still are sure to join in.?

While all of this activity does seem to indicate that we are in the midst of forging a ‘new normal,’ it raises questions about the future for firms that may be too small or otherwise unwilling or unable to invest in new technology. Will they be shut out of working for certain credit grantors due to a lack of technological capabilities? Will they become acquisition targets of larger companies seeking their talent and / or client relationships??

5. Trend in Focus: Regulation F

Preparing for Reg F was at the top of the ARM industry’s mind in 2021, but the story has yet to be written about how the new rules and requirements will impact the industry. We expect 2022 to answer many open questions, including:

• 7-in-7: Collectors may place a call to the consumer about a particular debt seven times within a period of seven consecutive days, as long as no contact is made with the consumer in any of the attempts. How will these new call limits change the industry’s approach to communicating with debtors? Will an omnichannel strategy become the new normal?
• Model Validation Notice: Debt collectors are required to provide a model validation notice, a daunting task that will require even the most seasoned ARM veterans to be retrained and properly equipped with updated procedures. Will agencies lean harder on digital communications where it’ll be easier to automate the model validation notice into outreach? Will the updated procedures increase turnover?
• Time of Day: Debt collectors may not attempt to contact a consumer before 8am or after 9pm in the consumer’s local time zone. How will an increased need for accurate consumer data impact efficiencies and violations?

According to a 2021 report by TransUnion, smaller agencies are lagging behind larger industry peers in adopting technology that is key to meeting Reg F requirements, including call recording, text messaging, and automated self-service capabilities.* Based on our discussions, some founder-owned firms have expedited their timing to pursue a sale, while others have chosen to wind down their business in order to avoid implementing Reg F. We believe that firms struggling to implement Reg F compliance procedures, or choosing not to, will likely become acquisition opportunities for growth-minded firms seeking to gain client relationships and ARM talent.?

Additional Trends to Know

Conclusion:

2021 showed us that the ARM industry remains a sought-after investment opportunity.

With new technology, companies, and capital flowing into the industry, more change is most certainly on the way. Some changes will improve performance and streamline operations while others will address compliance within the regulatory environment and other factors.

We expect that this will create additional M&A as owners and executives decide which side of the fence they prefer, the buyer’s side or the seller’s, as it appears – now more than ever – that standing still isn’t a great option.

About Greenberg Advisors

Greenberg Advisors, LLC is one of the most prolific and experienced M&A advisory and planning firms in the Accounts Receivable Management (ARM) industry. The firm’s professionals have provided trusted M&A and strategic advice to ARM executives and investors for over 25 years, resulting in the completion of over 140 M&A, capital raising, valuation, and strategic advisory engagements.?

Advising Industry Leaders for 25+ Years

The 2021 M&A Update, and prior versions, can also be accessed and downloaded here.

*A Transition to the Next Normal: The Collections Industry in 2021. TransUnion and Aite-Novarica Group, Nov. 2021.

Note: This update is for informational use only. All statistics and market data in this document are from GA’s proprietary M&A database.