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parties to ISO agreements (assignment). Instead, the Some sellers will refuse to wait for any part of their
seller instructs the processor to pay residuals to the purchase price. This places the buyer in the position of
buyer instead of to the seller. having to trust (or bet) on the seller's honesty and the
strength of the business purchased. Naturally, the seller
This form of sale is easier to implement. There is less will expect a lesser purchase price but will also be relieved
need for tinkering with ISO agreements, etc., but it of having to meet post-closing performance guarantees.
also complicates the long-term relationship between
buyer and seller. To continue receiving the residuals Non-solicitation
purchased, the buyer depends, more or less forever, No buyer wants to see the value purchased disappear.
on the seller's ISO agreement, with all of its ups and Consequently, purchasers will require sellers to agree to
downs. not solicit the merchants they have sold for some years
after closing. For an honest seller, this is not controversial.
If the seller fails to meet certain minimum However, even honest sellers are put to the test when
requirements of the ISO agreement, and residuals merchants call after closing complaining the buyer's
suffer as a consequence, the buyer is stuck in the service is sub-par or they simply prefer working with the
"back seat" of the seller's relationship with the seller.
processor.
Sellers should take the long view and not ruin a chance
Another complication of buying just residuals is that at a purchase price payout simply to place a few accounts
confusion may arise as to who should service the from the sold portfolio. Similarly, buyers need not take
portfolio's merchants. Absent discussion and clear an excessively harsh view of sellers who are approached
language in the purchase agreement, the seller may by merchants from the portfolio sold. Perhaps buyer and
conclude it need not service the accounts for which seller can take advantage of the relationships between
residuals have been sold. If the buyer doesn't assume those merchants and the seller for the good of all parties.
that service obligation, the merchants could become
neglected and subject to greater attrition. Many purchase scenarios involve the seller becoming an
agent of the buyer, making it easier for the seller to keep
Buyers of only residuals sometimes also reserve supporting the portfolio sold and renew the accounts in
the right to refrain from selecting a specific group that portfolio for the benefit of both parties.
of merchants for actual purchase until some years
after closing. For example, a purchaser may buy Non-competition
$50,000 per month in residuals, understanding that
36 months later, it will select a specific group of Non-competition means the seller will not be involved in
merchants that will be transferred to the buyer. the ISO business in a defined place for a specific amount
of time. A non-competition covenant is not usually given
Assuming the seller's ISO agreement allows for by a seller unless the seller is willing to be out of the ISO
such slicing and dicing (which often isn't the business for a specific amount of time and the seller is
case), a question arises as to whether the buyer given additional compensation for not competing.
should be entitled to $50,000 in 36 months or some
lesser amount, taking into account reasonable and To be clear, non-competition is not the same as non-
foreseeable attrition. solicitation. A seller bound by only a non-solicitation
clause can continue to be involved in the ISO business,
Residual sales should be well thought out in advance provided the seller does not harm the buyer's portfolio.
because, otherwise, the parties may face confusion
and disappointment down the road. A seller that is also bound by a non-competition clause
will likely have to find another line of business for the
Terms of sale non-competition period. That kind of promise usually
comes at a price for the buyer.
When selling an ISO business or portfolio, the key
consideration beyond purchase price is how quickly that There are, of course, many other considerations for ISO
price will be paid and on what conditions. Buyers will pay sellers, but those discussed herein are key.
more when sellers will wait longer to receive the purchase
price. Similarly, buyers will pay more for portfolios that
decline in value more slowly. Specifically, if the residuals In publishing The Green Sheet, neither the author nor the publisher is
purchased by the business don't decline substantially, the engaged in rendering legal, accounting or other professional services.
seller is more likely to receive the highest purchase price If legal advice or other expert assistance is required, the services of a
available. competent professional should be sought. For further information on
this article, please contact Adam Atlas, Attorney at Law via email at
atlas@adamatlas.com or by phone at 514-842-0886.

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