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Education

Preparing for a portfolio

sale starts on day one

1. A right of first refusal (ROFR) clause. This will tell
buyers more about how long a processor will have to
make a matching or counter offer if they make an offer
(LOI). So, the sooner you get that accepted LOI to the
processor, the better. That is when the clock starts for
the processor to make a counter offer. In many cases,
if the processor does not respond within that time
frame, it has waived ROFR by default, so make sure to
have digital confirmation that the processor received
it.

2. Information on portability. Buyers will want to
know whether the merchants can be moved to another
processor. 99.9 percent of the time the merchants are
By Christopher Hernandez not portable. When a seller approaches me, most of
Portfolio Buyer my efforts are focused on approaching ISOs that work
with the same processor. In rare cases, there is a work
ost calls I receive start with, "What can I get around for this obstacle.
for my portfolio?" Fair question, right? My
answer is always the same and not what An enterprise sale (buy the entire company/LLC) or
M most potential sellers want to hear: "Well, a residual payment redirect (changing payment info
that depends." The truth is selling your portfolio, albeit to the buyer's bank) can circumvent this issue, but an
an asset, is nothing like selling real estate or a boat. Many enterprise sale is a lot more involved and can cost more
variables specific to this industry affect the selling price, in legal fees to complete. A redirect can be riskier for
more commonly known as a multiple. the buyer because the MIDs are still under the seller's
control and can be changed back again. Because of
Mergers and acquisitions activity in payments is distinct that risk, the multiple may reflect that. Also, in very
from other industries. The selling price is affected by who rare cases in some agreements, the processor doesn't
your processor is, the contract terms for selling to other have to match or beat an offer from a buyer, but simply
ISOs, current merchant pricing, whether your portfolio can refuse to grant the seller a waiver of the ROFR. In
is high risk, your attrition, your location and, most this case, you may be stuck.
importantly, your willingness to continue to work with
the buyer post sale. 3. Merchant pricing. This can be a complex subject.
Buyers will want to know how sticky your merchants
Select your processor carefully. The processor you choose are. As we all know, some merchants will jump ship
can be critical to your exit strategy. It can directly affect for a half basis point, and most buyers understand this.
the interest level of perspective buyers and, in some cases, That aside, evaluating your pricing will give buyers
whether you will get any interest at all. There are certain an idea about whether merchants already have one
processors (I will not name names) that buyers will not foot out the door. In many cases, attrition increases
touch because of their bad reputations. We know all during the transition when accounts are being moved
processors are not created equal; some are more desirable into the buyer's portfolio and are charged higher rates.
than others. A processor's reputation for ISO and agent
support, as well as merchant support will play a major role So, it is important for both buyer and seller to know
in what your offer will look like or if you will get an offer where they stand before going too far down the road.
at all. If the buyer can use the existing statements for a
period, it is a bonus. On the plus side, most of the time
Critical issues the buyer is able to not only offer better pricing, but
more products and services and merchant support.
When buyers consider your contract terms and portfolio, This can make merchants a lot stickier.
they will look for several things:

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