Green Sheet interviews PortfolioBuyer.com CEO

Christopher Hernandez is CEO at PortfolioBuyer.com, a mergers and acquisitions consulting firm focused on the merchant services industry. The company evaluates merchant portfolios and residual streams, helping clients position portfolios for sale and facilitating introductions across its buyer network. In an exclusive interview with The Green Sheet, Hernandez shared his perspective on how payments industry and economic trends are shaping present and future portfolio valuations and sales. Following are interview highlights.

How have merchant portfolio sales changed in recent years?

The sale of residual portfolios has become more complex as buyers place greater importance on regulations, examination of pricing, risk mitigation, and assessing residual streams and their long-term retention potential.

What impact are regulatory trends having on portfolio sales?

Increased regulations around payment processing, data privacy and consumer protections are negatively effecting valuations and dampening demand for merchant residual portfolio sales in the payments industry.

What changes have you seen in the ways multiples are calculated?

Multiples are being calculated with more risk-adjusted metrics beyond just revenue and residuals. Factors like attrition rates and compliance heavily influence multiples. There has also been a trend building in the last year in which some buyers are requiring post-close sales to be considered.

What resources are available to help ISOs and MLSs sell portfolios?

Advisory services, legal analysts and portfolio broker firms like ours can assist ISOs and merchant level salespeople (MLSs) in valuing, marketing and selling their merchant portfolios.

How would you advise buyers and sellers to collaborate?

Prospective partners that demonstrate transparency, reasonable expectations and flexibility on both upfront and earn-out terms will position themselves for success. In addition, a willingness to compromise is key when sellers want to maximize value and buyers need investments that perform.

What are buyers looking for in the current market?

Buyers prioritize recurring cash flows from low-risk merchant verticals with low attrition rates. Payment technology integration and contracts with a lot of time remaining with high early termination fees (ETFs) can improve the seller's valuation. They want clean compliance and low attrition risks.

How can sellers optimally position their books?

Focus on cleaning up documentation and data, rationalizing any pricing outliers or merchants in your portfolio with high concentration, articulating value-add products and services, and illustrating the portfolio's long-term potential.

Any additional thoughts on current/near-term market conditions?

While relatively healthy overall, certain portfolios may face valuation challenges due to the recent uncertainties surrounding pricing models like cash discounting and credit card surcharging practices.

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