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Buying and Selling Merchant Processing Residuals

Buying or selling a merchant processing residual? We can help you evaluate opportunities and value your residual stream.

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...

Payments M&A: The Narrowing Delta Between ISO & Merchant Portfolio Valuations

Throughout the years, an interesting phenomenon related to payments processing portfolio valuations has arisen: the fair market value of a merchant acquiring portfolio has, more often than not, been equal to or greater than the fair market value of the payments processing company, or enterprise itself.  A review of Preston Todd Advisors’ proprietary database reveals that across the spectrum of ISOs with roughly 2,500 to 15,000 MIDs, approximately eight out of ten portfolios displayed this characteristic from 2008 through 2015.
The notion that a merchant portfolio asset can be worth more than the entirety of the company that built it is arguably counterintuitive – it doesn’t seem like that should be the case. After all, it’s human nature to intuit things this way: that a part of something cannot have a greater value than the whole. But when you take a closer look at the cost structure of a traditional ISO, the explanation as to why this phenomenon has historically proven true comes to light. Read more...

MRI for Your Business? – What a Sell-side Process Can Tell You About Your Company

Original Article Posted to LinkedIn, Authored 7.28.2016 by Adam T. Hark, Managing Director, Preston Todd Advisors Committing yourself, your company, and your employees to a sell-side process can be stressful, distracting, frustrating, and ultimately disappointing if the desired outcome is not achieved – that your company is sold on agreeable business terms. Most owner/operators with quality properties – companies with healthy balance sheets, good EBITDA margins, consistent YOY, double digit top line growth, and interesting, proprietary products and services, especially by way of technologies, find themselves in the advantageous position of not ever having to actually transact, even if that’s their intended objective. These owner/operators always have the option not to sell and pull their property off the market. Thus, for many sellers of quality businesses, the outcome of a formal sell-side process isn’t always an actual sale. 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...

“Bankcard ISO For Sale”-What Am I Really Buying?

In one of my meetings at a recent payments industry event I heard the one pronouncement that gets all the attendees frothing at the bit: “merchant processing ISO for sale”. Nothing gets the serial acquirers and investors in the bankcard industry more excited than those words. Buyers inquiring about ISO’s for sale represent > 50% of the inquiries our firm responds to on a monthly basis. Though there’s been much talk in the past few years about the commoditization of payments processing, ISO’s (quality ISO’s that is) are still very much in demand in today’s marketplace by both industry and non-industry acquirers alike. 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...

Selling Your Merchant Portfolio: Beyond The Numbers

Everyone in the merchant acquiring space has heard of “attrition”. And most everyone in the merchant acquiring space has heard of “revenue concentration”. These are primary drivers in merchant portfolio valuation. They are both quantifiable as well, meaning they are determined by mathematical calculations of data included in the merchant processing residual reports you receive from your processing partner. However, there are a host of other attributes of your merchant portfolio that are not defined by, nor can they be determined by, the merchant residual data. These attributes are defined and determined by the contract you signed with your processing partner. This contract, or ISO Agreement, you entered into can have a significant effect on the valuation and marketability of your merchant portfolio. 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...