Acquiring ARSI, Firstsource adds legal collections to its debt recovery arsenal

The Situation: The debt collections market has been slow during the pandemic—intentionally so in response to federal and state governments placing moratoriums on collections. However, as the pandemic recedes, spending kicks into high gear, and the “later” of buy-now-pay-later (BNPL) never comes, collections will make a necessary come back. With its recent American Recovery Services Incorporated (ARSI) acquisition, Firstsource has expanded its collections business ahead of a likely rise in defaults.

The COVID-19 pandemic was singularly responsible for millions of job losses in 2020 and 2021. Hundreds of thousands of businesses struggled and asked for aid and stimulus to survive. Financial help arrived from all quarters, especially the private lenders providing moratoriums to small and medium businesses. As we emerge from the pandemic economy, many US states are starting to permit judgments and garnishments. Moratoriums are being lifted as private lenders lobby for the administration to take favorable action and pare down, if not halt at once, pandemic-related moratoriums. Spending is also on full throttle, with BNPL coming to the fore. All of this led to bountiful opportunities looming large in the minds of leading service providers that could help or handhold lending institutions across the full-service debt collections value chain. Spurred by low interest rates, money is cheap at the tail-end of the ongoing pandemic, so Firstsource decided to expand its business by adding legal collections capabilities to its debt recovery arsenal.

Firstsource’s ARSI acquisition adds a timely and effective arrow to its quiver in the current debt collections market

Firstsource is on an acquisition spree. HFS previously wrote about its StoneHill acquisition, and now we’re talking about its most recent acquisition, American Recovery Services Incorporated. Firstsource anticipates this acquisition will enhance its consumer debt management services by adding legal stage collections capabilities. ARSI is a legal-heavy collections business with a network of 56 attorneys and four footprint attorneys; it is affiliated with Better Business Bureaus and ACA International.

ARSI earns a good portion of its revenue through debt collection commissions on the recovery of delinquent third-party accounts receivable and the performance of various outsourced accounts receivable management functions, including systems development, billing and early-stage management, third-party recovery, legal collections, and judgment recovery. Further, ARSI’s proprietary Outside Agency Control System (OACS) is a granular legal network management program with the flexibility to adapt to ever-changing regulatory requirements. Notable enhancements with the adoption of OACS are transparency to the entire legal process, an affidavit control system, a legal scoring model, and business intelligence.

Good synergies reinforce the ARSI acquisition game plan: integrating digital, offshore, and legal

Firstsource and ARSI complement each other across the debt collections value chain. We spoke to Firstsource to gather what and why of its ARSI acquisition. Firstsource primarily focuses on early-stage (first party) and late-stage (post-charge-off third-party) collections and recovery; ARSI specializes in late-stage and legal collections. The overlap with post-charge-off stage collections is largely complementary; even in shared clients, the companies supported different groups. Further, new services and a new client base present ample cross-sell and up-sell opportunities across existing Firstsource collections clients in financial services, telecommunications, automation, and healthcare.

ARSI’s network of 270 employees and attorneys further strengthens Firstsource’s existing headcount of 1,500 FTE collectors. Geographically, the acquisition adds Canada to Firstsource’s existing footprint. For ARSI, the acquisition ensures attractive valuation, offshore expansion, and, above all, the technology synergy available with the combination of ARSI’s OACS offering and Firstsource’s digital technology solutions like Digitally Empowered Contact Centers, Intelligent BackOffice, and Platform, Automation & Analytics.

The Bottom Line: Debt collections is about to make a necessary comeback. Enterprises looking for full-service debt collection partners now have an expanded option with Firstsource

Firstsource is expanding its collections business ahead of a likely surge in loan defaults as the pandemic recedes and spending increases, enhancing its late collections (third party) capabilities and adding legal collections. This positions Firstsource to support a broader array of client collections needs, including an expanded geographic presence in Canada. There is also exciting potential for Firstsource to drive its digital collections capabilities into the well-honed but manual attorney-led legal collections arena. As trendy buy-now-pay-later lending moves from customer acquisition to high-value and longer-term loans, debt collection and compliance needs are not far behind. Firstsource’s collections competitors are also acquiring for scale and capability. We expect the winners to be determined by proactively addressing shifting demands and ably activating digital collections strategies.