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NCO Deal to be Largest Ever for Collection Firm
by Patrick Lunsford,

NCO Group’s (Nasdaq: NCOG) Board of Directors announced yesterday that the collection/BPO giant’s longtime CEO, Mike Barrist, had made an offer to buy the company and presumably take it private. The total transaction value of the deal will be north of $1 billion, making it the largest in ARM history.

In an industry as fragmented as the collection/accounts receivable management industry, such a large deal involving its largest player is sure to raise a lot of interest. So what affect will NCO Group’s deal have on the industry? It may be too soon to tell, but there are clues hidden in the announcement and in the deal itself.

Barrist stated in his letter to the NCO Board that he was partnering with One Equity Partners II on the deal and that Morgan Stanley will be providing financing for the transaction. One Equity Partners is a private equity arm of JP Morgan Chase, acquired in the latter’s merger with Bank One. With names like JP Morgan Chase and Morgan Stanley in on the deal, it’s clear that the deal has approval from large banking institutions. Some see this as a trend itself.

“This is another example of the strong interest this industry is drawing from Wall Street and big-time private equity,” said Michael Lamm, Associate at industry advisor Kaulkin Ginsberg Company. “We’ve seen quite a few of these types of deals recently, and this particular one may be an indication of what’s to come,” added Lamm.

In April, Nikko Principal Investments Limited (NPIL), the European principal finance arm of Japanese investment firm Nikko Cordial Corporation, announced it was purchasing Cabot Financial, the leading debt purchaser in the UK, for some $478 million. In February, it was announced that private equity firm American Capital Strategies had purchased major industry player Financial Asset Management Systems, Inc. (FAMS). And in November of last year, KRG Capital Partners paid $350 million to acquire debt purchaser/collector Collect America.

Another place to look for industry impact lies in NCO Group’s position in the collection/ARM space. Long regarded as a pacesetter, the company has been on the leading edge of adopting new technologies and business practices, such as offshore outsourcing.

“Since going public in 1996, NCO has been the trendsetter for the industry,” said Mike Ginsberg, CEO of Kaulkin Ginsberg Company. “Even before they went public, Barrist was extremely forward-looking when it came to business practices and new technology. And I truly believe that this deal will allow him to take a longer view on the business rather than bowing to short-term quarterly earnings pressures that come with being publicly held.”

Ginsberg also added that this deal, as it stands now, will definitely be the largest transaction ever in ARM history.

“Obviously, this is not a done deal, and we won’t know the final total until it is. But if Barrist is behind it, I have all the confidence in the world that the deal will go down smoothly,” Ginsberg added.

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