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CAS INSIGHTS
 
 
The 2016 merger and acquisition (M&A) market in the U.S. outsourced business services (OBS) sector behaved as expected for most of the year. The OBS M&A market remained active throughout most of 2016 due to an ongoing consolidation of smaller OBS companies into larger ones, and select platform acquisitions of larger OBS companies by financial buyers (mainly private equity firms) and strategic buyers seeking to expand into a new service offering and/or geographic region.
 
 
 
 

The 2016 merger and acquisition (M&A) market in the U.S. outsourced business services (OBS) sector behaved as expected for most of the year. OBS includes companies in the Accounts Receivable Management (ARM), Customer Relationship Management (CRM) and healthcare Revenue Cycle Management (RCM) industries. The OBS M&A market remained active throughout most of 2016 due to an ongoing consolidation of smaller OBS companies into larger ones, and select platform acquisitions of larger OBS companies by financial buyers (mainly private equity firms) and strategic buyers seeking to expand into a new service offering and/or geographic region.

2016 was also a year of significant events that affected the OBS sector: Wells Fargo receiving a consent order from the Consumer Financial Protection Bureau (CFPB), the Department of Education announcing the winners and losers of the large business agency contract, not-for-profit healthcare providers and their Revenue Cycle Management (RCM) vendors working to ensure they were in compliance with the final 501(r) regulations, and of course, the nomination of Donald Trump as the next President of the United States. Once it became clear that Donald Trump was going to win the election, the mindset of many sellers and buyers began to change. Some deals that were already underway and intended to close by year-end were pushed into 2017 with hopes of a lower capital gains tax. Other deals were put on hold as sellers anticipated a reduction in regulatory requirements that would lead to better financial performance, and greater business opportunities with current and pending clients. Since his inauguration, President Trump has fueled these motivations with new appointments for the heads of the Federal Trade Commission (FTC) and Federal Communications Commission (FCC), and stated intentions of making changes at the Consumer Financial Protection Bureau (CFPB) – although no announcements have been made to date. President Trump has also instituted a strict guideline for future regulations, requiring two existing regulations to be recommended for termination for every new regulation proposed, and has his sights set on significantly modifying Dodd-Frank.

While it is difficult to predict exactly how much impact these changes will have on future business opportunities and performance within the OBS sector, we do expect that President Trump will live up to his campaign promises of reducing the existing regulatory environment to make it more attractive for businesses. Owners of OBS companies will want to maintain a close watch on these developments and make sure they know how these changes will impact their businesses, and their clients.

Here is a list of our 2017 predictions for the OBS sector:

  • Deal activity will match or exceed 2016 results
  • There will be an increase in M&A activity with larger OBS companies
  • U.S. companies will outsource more customer service and collections business
  • Sales of debt portfolios should increase
  • Healthcare providers will continue to consolidate, and smaller vendors will need to continue to expand their client base and diversify their service offerings to remain competitive
  • Richard Cordray will complete his term as head of the CFPB

We understand and appreciate that business owners may feel both motivated and concerned about the future of their companies and industries, but we believe that things will be sorted out in the near future and are optimistic about the long-term potential of the OBS sector.

We are grateful for your interest in our newsletter and the OBS sector, and appreciate any feedback or comments you may have.

Sincerely,

Mark Russell
Managing Partner

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CAS Transaction Summary

Johnson, Morgan & White Strategic Merger with Altus GTS Inc. – January 2017

One of the nations' leading debt recovery firms, Johnson, Morgan & White, completed a strategic merger with Altus GTS Inc., the largest corporate collection agency in North America, in January 2017. With offices covering both the U.S. and Canada, Altus, (www.TrustAltus.com) is North America's most sophisticated commercial accounts receivable management company.

Mark Russell, Managing Partner of CAS said “This transaction brings together two market leaders with complimentary skill sets and client bases. Together, they will be able to provide their clients with even greater service and performance.”

CAS served as the exclusive M&A advisor to JMW. Read full press release here.

CAS Conference and Event Activity

Please connect with us at one of the upcoming conferences/seminars that will be attended by CAS team members:

We hope that you find our newsletter a useful insight into the OBS sector and welcome any discussion of business interests or feedback you may have. Our contact information can be found at the end of this report.

Members of Corporate Advisory Solutions, LLC are Registered Representatives of, and securities transactions are conducted through, StillPoint Capital LLC; Member FINRA/SIPC. StillPoint Capital is not affiliated with Corporate Advisory Solutions, LLC.

Within the publicly traded ARM sector, there were three deals that were announced in the fourth quarter of 2016 which will most likely close in Q1 2017.  Intrum Justitia (STO:IJ) announced their intention to combine with European credit management service provider Lindoff. If the transaction is approved, it will create one of the largest providers of credit management services.  Intrum Justitia (STO:IJ)  have also entered into a definite agreement to acquire the UK debt purchaser 1st Credit. The deal will allow Intrum Justitia to widen their client base and strengthen its position in the European market. Additionally, PRA Group (NASADQ:PRAA) has sold off it government services business unit to Millstein & Co. The new entity will be called Government Revenue Solutions. This allows PRA to focus on their core strategies and create a new player in the government services marketplace. Millstein & Co. believe that that is a high demand for the government revenue services going forward.

All of the deals above are expected to, or have already closed in Q1 2017 and are not accounted for in our enterprise value calculations.   Below are some additional noteworthy transactions that took place in the ARM sector in Q4 2016:

Within the publicly traded RCM sector, there was one transaction that closed and one transaction has reached a definite agreement in Q4 2016. Medical Transcription Billing (NASDAQ:MTBC) acquired MediGain to enhance their customer base as well as improve their service offerings. Team Heath Holdings (NYSE:THM) is in a definite agreement to be acquired by Blackstone Group. The deal is expected to close in Q1 2017 and has not been included in the total enterprise value for Q4 2016.

Below are some additional noteworthy transactions that took place in the RCM sector in Q4 2016:

Within the publicly traded CRM sector there were three deals in the fourth quarter of 2016. TeleTech Holdings (NASDAQ:TTEC) acquired Atelka, a Canada based CRM company. West Corporation (NASDAQ:WSTC) has acquired 911 ETC, Inc, a provider of enhanced 911 services. NICE Systems (NASDAQ:NICE) has acquired inContact. This acquisition creates a more comprehensive and fully integrated set of solution offerings for NICE Systems.

Below is an additional noteworthy transaction that took place in the CRM sector in Q4 2016:

The section below features additional articles from CAS team members David Lavine and Elaine Rowley. David Lavine, discusses how the new tax laws proposed by President Trump laws will affect capital gains taxes. Elaine Rowley, provides an ARM Regulatory Update detailing the latest government news, regulation and compliance activities in the ARM sector.

Please feel free to contact the authors to further discuss the information they have detailed in their respective pieces below.

Consumer Financial Protection Bureau (CFPB)

CFPB Notices of Proposed Regulation Open for Comment:

Request for Information Regarding Consumer Access to Financial Records
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provides for consumer rights to access financial account and account-related data in usable electronic form. The Bureau of Consumer Financial Protection (Bureau or CFPB) is seeking comments from the public about consumer access to such information, including access by entities acting with consumer permission, in connection with the provision of products or services that make use of that information.

CFPB Reports and Updates:

Consumer Experiences With Debt Collection: Findings From the CFPB’s Survey on Consumer Views on Debt This report presents the results of the
Survey of Consumer Views on Debt which was conducted by the CFPB between December 2014 and March 2015. The survey results substantially expand the understanding of debt collection in the United States by providing the first comprehensive and nationally representative data on consumers’ experiences and preferences related to debt collection.

Market Snapshot: Online Debt Sales This report provides an introduction to the online marketplace for charged-off debt. This market consists of websites and in at least one case, a Facebook page, where portfolios of charged-off consumer debt are listed for sale.

Snapshot of older consumers and student loan debt
The number of consumers age 60 and older with student loan debt has quadrupled over the last decade in the United States, and the average amount they owe has also dramatically increased. 
Consumer Financial Protection Bureau Independent Audit of Selected Operations and Budget, Fiscal Year 2016
In accordance with the Dodd-Frank Act, the CFPB orders an annual independent audit of the operations and budget of the Bureau.

Republican members of House Financial Services Committee release new report on CFPB’s auto finance actions
Republican members of the House Financial Services Committee recently released a report, prepared by the Republican Staff of the Committee, titled “Unsafe at Any Bureaucracy, Part III: The CFPB’s Vitiated Legal Case Against Auto Lenders.” 

Department of Labor (DOL)

Agency Rule Lists

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CAS Resource Links:

CFPB, January, 2017, Report of the Consumer Financial Protection Bureau pursuant to section 1017(e)(4) of the Dodd-Frank Act

CFPB, January 2017,  Consumer Experiences With Debt Collection: Findings From the CFPB’s Survey on Consumer Views on Debt

CFPB, January 2017, Market Snapshot: Online Debt Sales

CFPB, January 2017, Monthly Complaint Report, Vol. 18

CFPB, January 2017, Fall-Winter Regulatory Agenda

CFPB, October, 2016 Annual Report of the CFPB Student Loan Ombudsman.

CFPB, October 2016, Guide to Loan Estimate and Closing Disclosure Forms.

CFPB, October 2016, Small Entity Compliance Guide

CFPB, September 2016, Monthly Complaint Report, Vol. 15

CFPB, April 2016 Online Payday Loan Payments

CFPB, April 2016, Student Loan 'Payback Playbook'

CFPB, March 2016, Winter Supervisory Highlights

DOL, Overtime Final Rule, May 2016

FTC, EU-U.S. Privacy Shield Framework, July 2016

FTC, Fair Debt Collection Practices Act

FTC, Memorandum of Understanding between the CFPB and the FTC, March 2015.

IRS, Internal Revenue Service Affordable Care Act

Office of the Comptroller of the Currency, Risk Management Guidance

Protecting Personal Information: A Guide for Business.





 
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