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Education

Now, this may sound strange coming from an M&A pro- Having full-time, supervised, and highly trained sales
fessional, but these days I'm less inclined to advise clients personnel capable of selling value-added products and
to employ this strategy. I continually find that clients are services that complement payment processing is a big plus
incapable of being properly diligent about these types of for acquirers and the companies that seek to buy them.
properties and wind up throwing good money after bad, And greater quality control historically produces higher
which translates to less than desirable or even negative re- retention rates, which feeds real, high-quality growth.
turns.
However, if I had my druthers, I'd go one step further (be-
Today, I'm more likely to recommend to clients to acquire yond investing in just the sales personnel) and appropri-
technology, whether that's in the form of software (busi- ate investment monies toward a top business development
ness management solutions), hardware (POS) or some team. Whereas sales personnel excel at selling products
form of payment scheme (SMS text-to-pay). and services, business development personnel excel at
selling the company behind the products and services,
Remember, the goal is quality growth, not just revenue establishing high quality relationships and partnerships
growth – which is the primary driver for making portfo- with other companies that can resell the same on the com-
lio or residual acquisitions. As such, technology acquisi- pany's behalf.
tions, if integrated properly into an acquirer's company,
are extremely effective drivers of quality growth via the This subtle but important difference can turn an ISO of
merchant account "stickiness" it creates. This leads to high any size into a real platform (a real enterprise even) with a
retention, and this in turn leads to real value creation. targeted approach to identifying and formalizing business
relationships with quality channel partners: independent
I cannot say the same about portfolio and residual acquisi- software vendors, associations, POS vendors and the like.
tions. In fact, unless done properly, I don't like the strategy Channel partners like these are "gold" to ISOs and MLSs,
at all for small to midsize acquirers. Portfolio and residual and the return on investment on allocated funds to these
acquisitions are more suitable, and have greater value to pursuits can be enormous.
larger players in the payments space, where synergistic
elements often come into play. Larger players also have All things being equal, it's good to be you
greater bandwidth and expertise to properly perform due At the end of the day, the unique attributes of the merchant
diligence on these types of properties and accurately mod- acquiring business lend themselves to attracting interest
el their financial return. from outside investors, and this is a very good thing.
Internal: capital allocation to existing business Having financial investment firms seeking out your
company to invest in is a much better lot in life than those
I love exploring the options available to merchant acquir- who own businesses in verticals where they're more likely
ers related to growth pathways that involve appropriat- to get tomatoes thrown at them for even asking an outsider
ing investment monies to build out their existing plat- to invest in them.
forms from the inside out. For starters, once again there's
the option of investing in technology. In lieu of acquiring Therefore, it's always a good idea (in my opinion) to explore
it though, payment companies can develop, build and these opportunities for compatibility and financial return
launch their own. to see if, within the context of quality growth, they can
add value. Just the same, it's also necessary to acknowledge
In this case, the investment capital is often allocated to hir- that it may not always be advisable to take in investment
ing software developers and a chief technology officer to from outside parties. If you do, it's incumbent upon you
head up the desired project. Assembling and maintaining to lock down the right strategy – the one that works best
a true technology team, and ultimately bringing to market for you.
a finished technology product adds a tremendous amount
of value to an acquirer's platform in the long term, both in I'd be remiss if I didn't also point out that many of the
terms of the technology itself, and the human capital and active investors in the payments and payment technology
their attendant capabilities. verticals bring much more to the table than just capital.
However, the attendant value that outside investors can
Next on my list of targeted business segments for invest- bring is an added bonus that typically piggybacks on the
ment would be an acquirer's sales channel. It could be as money.
simple as increasing the number of sales personnel, or
transitioning from a 1099 channel to an in-house, direct Adam T. Hark is Managing Director of Preston Todd Advisors. With over a
W-2 channel with much greater quality control, and the decade of consulting in the payments and financial technology sectors,
ability to train and educate the same on a wide range of Adam advises clients on M&A, growth strategy, exits, and business valua-
additional product and service offerings to sell to both ex-
isting and new merchants. tions. Adam T. Hark can be reached at adam@prestontoddadvisors.com
or 617-340-8779.

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