Preparing for t
 Your Merchant

he Sale of
 Portfolio

by Scott Calliham       


   SO, YOU ARE THINKING OF SELLING YOUR PORTFOLIO. Here are a few suggestions to prepare for a sale and to improve your value.

Be aware that the sales route is typically an extended process. There are generally three basic components of a sale:
1) Preparing for the Sale, 2) Sales Process and 3) Earn-out Component of the Purchase Price. The earn-out component may not be applicable if the buyer is willing to pay you 100% cash up-front, but don’t count on it. These three components in aggregate can take up to several years from start to finish. For example, the preparation for the sale can take one to three years, the actual sales process can take several months to a couple of years and the earn-out component can take two to five years. You should be prepared for this type of timing, especially if you have your heart set on exiting the industry as quickly as possible.
   It is beneficial to have thought ahead of actually selling the portfolio. For example, if you know (or think) you want to sell in the next couple of years, there are certain areas you can focus on today in order to maximize the value of the portfolio in the future. Some areas you can focus on include:

Ownership: You should ensure you have a clear right to sell the merchant accounts or the residual streams. If there is any ambiguity in your agreement(s) with your sponsor bank, you should begin the process of replacing or amending the contract(s) immediately. Once your sponsor bank is aware of your intention to sell your portfolio, you will quickly lose any leverage you have in contract negotiations.

Merchant Concentration: You should ensure the portfolio does not have an unusually high merchant (or segment) concentration. For example, if 75% of the portfolio’s sales volume and revenues are associated with a handful of merchants, buyers will tend to view this as a fairly risky portfolio. In general, the riskier the buyer views a portfolio, the lower the valuation tends to be.

Growth: Prospective buyers will base part of the value on its historical growth trends. If you can not show a consistent historical growth rate, it will be a tough sale to convince the buyer that there are optimistic future growth rates.

Revenue: Buyers will typically focus on the net revenues (gross discount less interchange less assessments) of the portfolio, as opposed to your expense structure. Needless to say, the higher the revenue the higher the valuation.

Data Availability: It is extremely beneficial if you can provide detailed analyses of the portfolio (e.g., chargeback rates at the merchant level, merchant profitability, etc.), as buyers will generally discount their offer due to issues they do not understand.

The sales process is usually not an easy experience and your stress level will most likely increase throughout the process. However, a little preparation prior to a sale can greatly improve the value of your business, not to mention make the entire sale a more efficient and positive process.


Scott C. Calliham is a Senior Consultant with First Annapolis Consulting, Inc. Mr. Calliham focuses on the transaction processing and acquiring businesses and mergers and acquisition advisory services.