Page 50 - GS150701
P. 50
Education
10 things to consider before 2. Companies rarely purchase a full
portfolio of residuals in an initial offer
selling your residuals Not only is it unnecessary to sell all your residuals at once
if you wish to maintain a monthly allocation, but most
companies aren't interested in purchasing everything in
the initial offer. Our acquisitions team usually seeks to
procure half upfront and the other half one or two years
later, depending on the deal's structure. Some companies
have a shorter time frame or none at all on full acquisitions.
It's best to enter the process with the understanding that
you may retain and independently manage a portion of
your portfolio.
3. Selling residuals doesn't mean
selling your company
Most companies purchase residuals without requiring
or even requesting that an ISO or MLS make changes
to customer-facing aspects of operations, including the
seller's business name. Purchasing companies understand
that, if they find a portfolio is desirable for acquisition, it
By Richard A. Sachs means it has been well managed and maintained.
TouchSuite
The last thing they want is to challenge a comfort level
or an agent or ISO, building an impressive attained among satisfied merchants. The most desirable
merchant portfolio can take many years and a outcome is always one that allows for "business as usual"
breadth of industry knowledge. And once this for the ISO or MLS and the merchants.
F level of success is achieved, a portfolio can be
worth even more to the larger financial companies shop- 4. Policies regarding customer service will vary
ping for promising portfolios. But even for those with a
lifetime of industry experience, understanding the residu- Most deals are structured so that a full portfolio's residuals
al purchasing process can be unfamiliar territory. are redirected to the purchasing company. Therefore, the
ISO or MLS receives a payout of the remaining residuals
Before considering any offers or actively pursuing a the seller still owns. Thus, after receiving the initial
procurement partner, you, as an ISO or merchant level payment, it's in the seller's best interest to maintain a
salesperson (MLS) should weigh a number of factors. I've healthy portfolio so the payout remains at or above where
outlined 10 critical considerations involved in buying and it was when the residuals were sold.
selling portfolio residuals. This article strives to reflect
the industry at large, but remember, every company is For some, a huge concern is combating attrition as they
different in how it prospects, appraises and structures continue to operate as their own company and receive the
deals when acquiring portfolio residuals. residual payout. This may be because they are concerned
that their merchants' service needs may no longer receive
1. Portfolio value is based on much the same level of attention. A more involved acquiring
more than monthly residuals company has a large enough infrastructure to fully
support customer service. However, this is usually not a
Every company has its own methodology when appraising mandated aspect of the deal.
a portfolio. Multiples for the payout can range between 18
and 40 times the monthly residuals being acquired, with If the customer service you provide is a primary aspect
an average between 24 to 36 times. The final figure will of your merchant management, consider maintaining this
depend on a number of variables, such as ratio of brick-and- after the sale, but also be aware that some companies may
mortar to card-not-present retailers, merchant retention put a value to the inclusion of their own customer service
history and average monthly residuals. For sellers, it's best when making you an offer.
to research which companies are interested in purchasing
residuals that most align with your current portfolio and 5. Merchant stability is an aspect of valuation
therefore present the most favorable offer.
Your monthly residuals may look impressive, but an
investment to acquire them essentially creates what
is anticipated to be a long-term commitment between
your merchants and the acquiring company. Your
50
10 things to consider before 2. Companies rarely purchase a full
portfolio of residuals in an initial offer
selling your residuals Not only is it unnecessary to sell all your residuals at once
if you wish to maintain a monthly allocation, but most
companies aren't interested in purchasing everything in
the initial offer. Our acquisitions team usually seeks to
procure half upfront and the other half one or two years
later, depending on the deal's structure. Some companies
have a shorter time frame or none at all on full acquisitions.
It's best to enter the process with the understanding that
you may retain and independently manage a portion of
your portfolio.
3. Selling residuals doesn't mean
selling your company
Most companies purchase residuals without requiring
or even requesting that an ISO or MLS make changes
to customer-facing aspects of operations, including the
seller's business name. Purchasing companies understand
that, if they find a portfolio is desirable for acquisition, it
By Richard A. Sachs means it has been well managed and maintained.
TouchSuite
The last thing they want is to challenge a comfort level
or an agent or ISO, building an impressive attained among satisfied merchants. The most desirable
merchant portfolio can take many years and a outcome is always one that allows for "business as usual"
breadth of industry knowledge. And once this for the ISO or MLS and the merchants.
F level of success is achieved, a portfolio can be
worth even more to the larger financial companies shop- 4. Policies regarding customer service will vary
ping for promising portfolios. But even for those with a
lifetime of industry experience, understanding the residu- Most deals are structured so that a full portfolio's residuals
al purchasing process can be unfamiliar territory. are redirected to the purchasing company. Therefore, the
ISO or MLS receives a payout of the remaining residuals
Before considering any offers or actively pursuing a the seller still owns. Thus, after receiving the initial
procurement partner, you, as an ISO or merchant level payment, it's in the seller's best interest to maintain a
salesperson (MLS) should weigh a number of factors. I've healthy portfolio so the payout remains at or above where
outlined 10 critical considerations involved in buying and it was when the residuals were sold.
selling portfolio residuals. This article strives to reflect
the industry at large, but remember, every company is For some, a huge concern is combating attrition as they
different in how it prospects, appraises and structures continue to operate as their own company and receive the
deals when acquiring portfolio residuals. residual payout. This may be because they are concerned
that their merchants' service needs may no longer receive
1. Portfolio value is based on much the same level of attention. A more involved acquiring
more than monthly residuals company has a large enough infrastructure to fully
support customer service. However, this is usually not a
Every company has its own methodology when appraising mandated aspect of the deal.
a portfolio. Multiples for the payout can range between 18
and 40 times the monthly residuals being acquired, with If the customer service you provide is a primary aspect
an average between 24 to 36 times. The final figure will of your merchant management, consider maintaining this
depend on a number of variables, such as ratio of brick-and- after the sale, but also be aware that some companies may
mortar to card-not-present retailers, merchant retention put a value to the inclusion of their own customer service
history and average monthly residuals. For sellers, it's best when making you an offer.
to research which companies are interested in purchasing
residuals that most align with your current portfolio and 5. Merchant stability is an aspect of valuation
therefore present the most favorable offer.
Your monthly residuals may look impressive, but an
investment to acquire them essentially creates what
is anticipated to be a long-term commitment between
your merchants and the acquiring company. Your
50
