Merchant Residual & Merchant Portfolio Sales: Due Diligence FYI’s For Sellers
For sellers of merchant portfolios and sellers of merchant residuals, there are a couple of basic things you need to know about the process involved with these types of transactions, especially as it relates to the initial information, or due diligence request, you should expect to receive from potential buyers.
1) Though there are qualitative attributes of your merchant portfolio and or merchant residual that affect valuation, understand that for the most part, the valuation for these types of properties is data driven i.e. quantitative. The data that buyers require comes from your monthly residual reports. You should know that buyers will need your comprehensive residual reports with merchant level detail in Microsoft Excel format. They need this level of detail, and in this format, so that the buyer can run the standard analyses on the portfolio. If you don’t have those types of reports on hand, contact your processor (if you’re an ISO), and your ISO (if you’re an agent), and request them. Your processor and or ISO does have these reports and will give them to you upon request.
2) For a lot of sellers, there’s an instinctual “uncomfortability” with giving a buyer merchant level detail information on their merchant accounts, especially as it pertains to the MID’s. For sellers, you need to understand that buyers are not looking for your MID’s for any other reason than that they need some form of numeric identifier for each merchant account so they can track that merchant account’s activity over time. This is especially important as it pertains to attrition analysis which is arguably the number one driver in determining merchant portfolio or merchant residual valuation. If you’re that concerned with revealing your merchant’s MID’s, you can always re-code them if need be.
I hope sellers out there find this information useful. You need to understand that the real buyers out there, buyers with a proven track record of having made these types of acquisitions, are pros, and getting off to a slow start after you’ve engaged one of these buyers because of hang-ups related to the preceding two issues will often turn a buyer off and quite possibly compel them to quickly move on to the next deal. Don’t lose out on a good deal due to your own inexperience with these types of transactions. And always engage a consultant if you aren’t sure about how the deal process typically works.