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Education

A redirect can be riskier
If you are staying on to continue to work with the for the buyer because the MIDs
buyer post sale, this can make you more money, more
easily. So, everybody wins. are still under the seller's control

4. Factors affecting level of risk. If you accept all and can be changed back again.
business types, you probably know about high-risk Because of that risk, the multiple
processing. High risk doesn't just mean marijuana
dispensaries and online dating. High risk can also may reflect that.
mean high concentration. This is another variable
that is considered a high-risk purchase for a buyer. So, 6. Location, location, location. Geography played
the multiple will reflect that. As a buyer analyzing a a big factor in portfolio sales in the past. ISOs were
portfolio that averages $100,000 in residual income, if looking to purchase portfolios in an area where they
80 percent of that income is from one merchant, that already had a presence. If a buyer already had an
portfolio is also high risk. office and boots on the ground, that was a huge plus
for a seller – and still is. However, today's payments
Also, when an ISO and merchant have a close industry encompasses the world. Businesses are no
relationship, buyers fear that if the seller goes, the longer confined to their immediate locale. Buyers are
merchant is soon to follow. That ISO has nurtured establishing footprints nationwide. What easier way is
that merchant for many years in some cases, so there there to do this than through acquisitions?
is a high risk the merchant will be lost. In addition, if
the merchant goes out of business after the sale, the Next steps
buyer will then be under water on a seven or eight
figure acquisition. And keep in mind that high levels I've saved the most important question sellers ask for last:
of chargebacks can be a factor. Finally, if the portfolio "What should I do after I sell?" Again, the answer is, "Well,
has significant liabilities like ISO loans or lawsuits, that depends." If you are ready to buy that trawler and
they are not necessarily a deal killer, but certainly will charter fish, you can get help to arrange the best terms
affect a buyer's interest and offer. for your exit. If you're looking to stay in the business and
want to maximize an offer from a buyer, sign up to work
5. Attrition. Nobody likes losses, but they are an with the buyer. The buyer will likely offer a better split
absolute certainty. Businesses shutter for many than you're getting in addition to better pricing, support,
reasons that are out of the control of ISOs or agents. products and services. Most importantly, chances are high
Buyers understand that. That is why buyers look at you will add a couple of multiples to the sale.
your attrition and will generally include an average 10
percent attrition guarantee as one of the stipulations Many buyers will not buy a portfolio without continued
for a sale. Ten percent is considered a fair number for involvement from the seller as part of the sale. If you'll be
the unavoidable losses that will occur. sticking around for the next few years and continuing to
earn, you will be mitigating the buyer's risk.
In the past, attrition guarantees were based on
merchant (MID) loses. A typical attrition clause would I have heard far too many ISOs and agents say, "I wasn't
require that during a predetermined time during the aware of that," when I tell them a portfolio will be hard or,
earn-out period following closing of the sale (usually in some cases, impossible to sell. It's a tough conversation
24 months), the seller would be responsible for to have. Unlike the terms and conditions no one reads
replacing a lost merchant with another merchant that when downloading and registering a mobile app, you
produces equal or greater residual income. need to read the terms of your sales agreement. Otherwise,
you won't have the keys to that exit you'll soon be looking
Today, a different method is generally employed. for.
Attrition is based on income loss rather than merchant
loss. Thus, the seller would be required to maintain the Christopher Hernandez is CEO of Portfolio Buyer, www.portfoliobuyer.
income of the portfolio for the duration of an agreed com, a mergers and acquisitions consulting firm that focuses on the
upon period. If the seller is not able to maintain the merchant services industry. The firm's buyer network concentrates on
income, the seller may not qualify for the remaining purchasing merchant portfolios and residual streams with the objective
earn-out payments. Buyers typically pay 70 to 80 of providing clients personalized, professional service and the maximum
percent upfront at closing. The remaining 15 to 20 portfolio valuation. He can be reached at chernandez@portfoliobuyer.
percent is paid over an 18- to 24-month period, which com.
is referred to as an earn-out period.

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