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Building a Valuable Merchant Portfolio

Maximizing Portfolio Value in a Sale: Capitalizing on the Valuation Variance of Downline MLS Portfolios

M&A activity in payments is prodigious, and maximizing portfolio value in a sale has never been more important. Though the heavy level of deal activity in the marketplace is a fairly current phenomenon ( the past 18 months or so), there’s nothing particularly new about trying to maximize the value of the businesses and/or assets we own when we attempt to sell them. In the merchant acquiring space, saleable properties are unique, and their worth is ultimately valued on the basis of “primary attributes” tied directly to the performance of the underlying payments processing portfolio: attrition, revenue concentration, and SIC/MCC distribution for starters. However, in such an active market, where demand is so high, new buyers emerge, and by virtue of their expansion of the marketplace, these new buyers bring new deal structures and the concomitant broadening of those primary attributes which drive portfolio and ISO valuations. Read more...

Portfolio Rationalization

Once upon a time, a merchant was a merchant was a merchant. The putative strategy in merchant acquiring was simple: board as many accounts as possible – big merchants, small merchants, low risk merchants, high risk merchants, and even new LLCs – basically any merchant with a checking account and an “open for business” sign. The rationale for this was straightforward: payments processing – transaction processing – produced real, actualizable revenue that made merchant acquiring a lucrative endeavor. Read more...

High Stakes for Agents in 2017: Re-evaluating the Agent vs ISO Question

As the acquiring industry continues to rapidly reinvent itself, birthing a variety of new, technology-centric business models to better service the demands of the modern day merchant, many long time merchant level salespersons (“MLS’s”) and agents are faced with the increased pressure of having to decide how best to position their companies for a successful future. The sheer velocity of this “reinvention” of the acquiring industry has forced many agents to re-evaluate the upside of continuing their agent status versus registering directly with MasterCard and VISA and becoming an ISO. As a “successful future” for a business is oft measured by sustainability, growth, and value creation, 2017 will be a determinative year for many agents who will be forced to reconcile themselves to one or the other of these two pathways forward. Read more...

Selling Your Merchant Portfolio: Seeking Maximum Valuation

The bankcard industry is rife with legends of merchant portfolios sold at outlandish premiums. However, like most legends, the reality is much different that the industry gossip would have you believe. The majority of portfolio transactions do not sell at a premium. However, there are certain merchant portfolios that trade at much higher multiples than others, and in many cases, the difference in valuation can be substantial. Read more...

“Merchant Portfolio Sales: “Staging” the Portfolio

Members of our firm who contribute to this blog are constantly reinforcing the importance of a handful of merchant portfolio attributes that weigh very heavily into the valuation and saleability of the portfolio asset. Attrition of accounts, CC volume, transactions, and revenue, along with revenue concentration, are prime examples of those particular attributes which figure so prominently into the portfolio valuation and its ability to be sold. And it is surely true, that for many buyers of these properties, certain values in these categories can render the possibility of the merchant portfolio being acquired null. Read more...

Merchant Portfolio Valuations: 2015 Prediction #1 – Multiples Going Down

For those who regularly read this Blog, by now you would be very familiar with the axiomatic truth that the valuation of any asset or enterprise is directly tied to the amount of risk associated with the property, and, whether the nature of that risk is endogenous or exogenous. The greater the risk, the greater the return an investor has to make, and the lower the valuation of the property must be. This principle undergirds the foundation of valuation “science” and cannot be ignored. It is with this principle in mind that I proffer this prediction: non-technology integrated merchant portfolios will experience a downward pressure on valuation in the year 2015. Read more...

Buying & Selling Merchant Processing Residuals: Assessing the Agent/MLS Risk

For over 20 years now the merchant acquiring space has been seen by industry players and outside investors alike as fertile grounds for deploying capital. At first blush, the notion of investing money in an asset class characterized by the generation of a predictable, recurring revenue stream seems like a no brainer for any experienced investor. It has the perception of a low risk proposition, right? Read more...

Merchant Portfolio Sales & Valuation: The Four Faces of Attrition

Looking at bankcard portfolio attrition from the perspective of accounts, transactions, revenue, and charge volume

When most merchant portfolio owners think about attrition, they typically focus on the attrition relating to lost merchant accounts. While it is true that merchant account attrition is an important facet of bankcard portfolio valuation, a portfolio owner must realize that a proper analysis of bankcard portfolio attrition is not limited to merchant accounts alone. Read more...

Two New Concerns in Merchant Portfolio Valuation

As the acquiring industry has matured over the years, owners and operators of both ISOs and MLS/Agent Offices have become wiser in understanding the more important drivers in the valuation of their bankcard portfolio properties.

Most owners understand the importance of knowing their rate of attrition (although not all know the proper way to calculate it), and most owners intuitively understand the issues of revenue concentration, where a small subset of accounts is throwing off a disproportionately large amount of residual compared to the rest of the merchant portfolio. Read more...

Selling Your Merchant Processing ISO: 5 Things That Make Your ISO More Attractive To Buyers

As the times change, so too do our perceptions of what is good and bad. And just as in life in general, this natural course of things holds true in the merchant acquiring industry.  What buyers of merchant processing ISO’s and portfolios perceived to be positive attributes just 6 or 7 years ago, no longer holds true…at least not exactly. Read more...