Collector – October 2019 - 18

$1.1+

BILLION
ARM industry deal value for
the first two quarters of 2019.

WHAT DRIVES ARM COMPANIES
INTO DISTRESS?

Source: Corporate Advisory Solutions

While every situation is unique, here are a
few common scenarios:
1. The company just lost a very
profitable, big client. This could
have been a first-party project or
a traditional contingency client
relationship that was a significant
portion of its revenue, and the loss
threw the business into a tailspin.
2. The company had a significant legal
or compliance stumble. There have
been many serious and costly issues
arising from the Telephone Consumer
Protection Act as well as state or
regulatory actions. This could push a
company into a tough position where it
needs to make a deal quickly.
3. The company's balance sheet could
be upside down. A company can be
overleveraged for a variety of reasons.
For example, maybe it took on a lot
of debt when the owners purchased
the business or financed a portfolio. A
financial hiccup or decline in collection
performance can put the company into
a tough cash flow position.

HOW CAN BUYERS STRUCTURE A
DEAL TO PROTECT THEMSELVES?
There are a few things to keep in mind when
purchasing a distressed asset:

18

1. If the distressed company is having
financial issues, there may also be
compliance problems. For this reason,
buyers should consider looking at an
asset rather than a stock deal. This helps
to avoid any skeletons in the closet
the purchaser may be walking into or
inheriting. While a stock purchase may
have a strategic reason, all else being
equal it is advisable to buy assets in
distressed situations.
2. Make sure the company is operating
in trust and isn't using client money
to fund the business. This liability is
an issue that will follow the purchaser
after the business is sold. At the front
end, assess whether the distressed asset
is in trust or out of trust with any of
its clients. If the answer is "yes," hit
the pause button. You might want to
avoid doing a deal altogether because
transferring the clients could expose
you to a significant legal risk.
3. Figure out who has the client
relationships. That person will be
critical in transitioning the client
base to the buyer. Make sure you are
either locking into or assuming an
employment agreement as part of the
deal so clients will move over to you as
part of the transaction.
4. Look at the balance sheet and
liabilities. Instead of paying cash up
front as part of the deal, there may be a
facility lease assumption-some form of
long-term debt that could be assumed
by the buyer instead of paying cash up
front.
5. Structure the deal in a favorable
manner. Earn-outs are frequently used
in distressed or turnaround deals. An
earn-out in the ARM industry will
typically be based on revenue rather
than profitability because you will
likely be consolidating the agency
or debt buying operation into an
existing facility. That's why a deal based
on revenue becomes much easier.
Typically, revenue-based earn-outs look
at one to three years of revenue, but
you could go back three to five years

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Collector – October 2019

Table of Contents for the Digital Edition of Collector – October 2019

President’s Page
Industry News
Best Practices
FYI
Collection Tips
Accessibility From Every Angle
Information Transformation
Calendar
Honor Roll
Education Spotlight
Behind the Name
A.I. is Transforming Compliance. Are You Ready?
What to Watch in 2020
ACA’s Industry Advancement Program Provides Amicus Support in Key FDCPA Statute of Limitations Issue
ACA SearchPoint
Ad Index
Membership
Last Word
Collector – October 2019 - Cover1
Collector – October 2019 - Cover2
Collector – October 2019 - 1
Collector – October 2019 - 2
Collector – October 2019 - 3
Collector – October 2019 - 4
Collector – October 2019 - President’s Page
Collector – October 2019 - Industry News
Collector – October 2019 - 7
Collector – October 2019 - 8
Collector – October 2019 - 9
Collector – October 2019 - Best Practices
Collector – October 2019 - 11
Collector – October 2019 - FYI
Collector – October 2019 - 13
Collector – October 2019 - Collection Tips
Collector – October 2019 - 15
Collector – October 2019 - 16
Collector – October 2019 - 17
Collector – October 2019 - 18
Collector – October 2019 - 19
Collector – October 2019 - Accessibility From Every Angle
Collector – October 2019 - 21
Collector – October 2019 - 22
Collector – October 2019 - 23
Collector – October 2019 - Information Transformation
Collector – October 2019 - 25
Collector – October 2019 - 26
Collector – October 2019 - 27
Collector – October 2019 - 28
Collector – October 2019 - 29
Collector – October 2019 - Calendar
Collector – October 2019 - Honor Roll
Collector – October 2019 - Education Spotlight
Collector – October 2019 - 33
Collector – October 2019 - Behind the Name
Collector – October 2019 - 35
Collector – October 2019 - A.I. is Transforming Compliance. Are You Ready?
Collector – October 2019 - 37
Collector – October 2019 - What to Watch in 2020
Collector – October 2019 - 39
Collector – October 2019 - 40
Collector – October 2019 - 41
Collector – October 2019 - ACA’s Industry Advancement Program Provides Amicus Support in Key FDCPA Statute of Limitations Issue
Collector – October 2019 - 43
Collector – October 2019 - ACA SearchPoint
Collector – October 2019 - Ad Index
Collector – October 2019 - Membership
Collector – October 2019 - 47
Collector – October 2019 - Last Word
Collector – October 2019 - Cover3
Collector – October 2019 - Cover4
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