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The ISO and portfolio 1. Low interest rates: The continuation of historically
low interest rates suggested there would still be lots
market that wasn't of inexpensive money available to finance ISO and
portfolio acquisitions. On balance, this would be a net
boon to valuations, as "cheap" money makes growth
supposed to be through acquisition a viable pathway (as compared
to organic growth through a company's extant sales
channel); this financial vitality often brings new buy-
ers into the marketplace with the net effects of in-
creased demand and higher valuations.
Additionally, lower interest rates would mean that
buyers could borrow greater amounts of money, thus
allowing them to pay more for acquisitions (in nomi-
nal dollars) than they could otherwise, also lending
itself to increased valuations.
2. EMV compliance deadline: With the Europay,
MasterCard and Visa (EMV) compliance deadline
looming in October 2015, the race was on for ISO
owners to get their merchants switched into updated,
compliant terminals and POS systems. This I foresaw
(and I still see) as a big drag on ISO and portfolio val-
uations because it injects a new perceived aspect of
risk for buyers acquiring these types of properties.
By Adam Hark Why? One of the fundamental premises of valuation
MerchantPortfolios.com is that the greater the inherent risk of an acquisition,
the greater the return on capital the buyer will re-
n the world of ISO and bankcard portfolio sales, the quire, and therefore, the less a buyer will be willing
turning of the year is historically an active time for to pay. The risk associated with the EMV compliance
mergers and acquisitions, as many owners set out to deadline would manifest itself in owners' portfolio
I chart the future course of their businesses. The basic attrition numbers.
questions many owners ask at this time are whether to exit
or whether to invest in growth. If investing in growth, the Think of it this way: one of the golden rules in the
question then becomes whether that investment requires merchant acquiring business is don't disturb the mer-
the monetization of their merchant portfolio assets. chants. When an ISO or agent disrupts a merchant's
business, in this case to explain why they need to
In my line of work, I spend much of my time consulting with switch their equipment or re-program their POS sys-
business owners about these very questions. I endeavor to tem, it creates a situation where the merchant may
offer guidance by way of thoughtfully working through ask him or herself, "When was the last time I shopped
their decision-making process and prognosticating about my merchant services?" If the merchant acts on this, it
market dynamics that will be in play for them if and opens the door for competitors to gain the merchant
when they do make their decisions. Much of this means account, and the loss of that merchant manifests it-
predicting where ISO and portfolio valuations will be in self in a spike in an acquirer's portfolio attrition.
the next 12 months. A reasonable prediction
And so it was, in January 2015 I found myself advising Having spent much time evaluating my two drivers of
clients on these very issues, assessing what I believed to valuation for 2015, I came to the following conclusion:
be (at the time) the catalysts that would push ISO and merchant portfolio and ISO valuations would come
portfolio valuations higher or lower in the coming year. down. The argument? In these post Great Recession
times, historically low interest rates are nothing new.
An informed analysis Though I stood by my assertion that low interest rates
After much musing (and if you live in the Northeast like would ultimately increase market demand and allow for
I do, you know there was plenty of time for musing this buyers to pay more for acquisitions, I just couldn't ignore
past winter), I identified what I believed to be the two what I believed would be the negative effects of the EMV
primary catalysts for ISO and portfolio valuations in 2015: deadline.
30
The ISO and portfolio 1. Low interest rates: The continuation of historically
low interest rates suggested there would still be lots
market that wasn't of inexpensive money available to finance ISO and
portfolio acquisitions. On balance, this would be a net
boon to valuations, as "cheap" money makes growth
supposed to be through acquisition a viable pathway (as compared
to organic growth through a company's extant sales
channel); this financial vitality often brings new buy-
ers into the marketplace with the net effects of in-
creased demand and higher valuations.
Additionally, lower interest rates would mean that
buyers could borrow greater amounts of money, thus
allowing them to pay more for acquisitions (in nomi-
nal dollars) than they could otherwise, also lending
itself to increased valuations.
2. EMV compliance deadline: With the Europay,
MasterCard and Visa (EMV) compliance deadline
looming in October 2015, the race was on for ISO
owners to get their merchants switched into updated,
compliant terminals and POS systems. This I foresaw
(and I still see) as a big drag on ISO and portfolio val-
uations because it injects a new perceived aspect of
risk for buyers acquiring these types of properties.
By Adam Hark Why? One of the fundamental premises of valuation
MerchantPortfolios.com is that the greater the inherent risk of an acquisition,
the greater the return on capital the buyer will re-
n the world of ISO and bankcard portfolio sales, the quire, and therefore, the less a buyer will be willing
turning of the year is historically an active time for to pay. The risk associated with the EMV compliance
mergers and acquisitions, as many owners set out to deadline would manifest itself in owners' portfolio
I chart the future course of their businesses. The basic attrition numbers.
questions many owners ask at this time are whether to exit
or whether to invest in growth. If investing in growth, the Think of it this way: one of the golden rules in the
question then becomes whether that investment requires merchant acquiring business is don't disturb the mer-
the monetization of their merchant portfolio assets. chants. When an ISO or agent disrupts a merchant's
business, in this case to explain why they need to
In my line of work, I spend much of my time consulting with switch their equipment or re-program their POS sys-
business owners about these very questions. I endeavor to tem, it creates a situation where the merchant may
offer guidance by way of thoughtfully working through ask him or herself, "When was the last time I shopped
their decision-making process and prognosticating about my merchant services?" If the merchant acts on this, it
market dynamics that will be in play for them if and opens the door for competitors to gain the merchant
when they do make their decisions. Much of this means account, and the loss of that merchant manifests it-
predicting where ISO and portfolio valuations will be in self in a spike in an acquirer's portfolio attrition.
the next 12 months. A reasonable prediction
And so it was, in January 2015 I found myself advising Having spent much time evaluating my two drivers of
clients on these very issues, assessing what I believed to valuation for 2015, I came to the following conclusion:
be (at the time) the catalysts that would push ISO and merchant portfolio and ISO valuations would come
portfolio valuations higher or lower in the coming year. down. The argument? In these post Great Recession
times, historically low interest rates are nothing new.
An informed analysis Though I stood by my assertion that low interest rates
After much musing (and if you live in the Northeast like would ultimately increase market demand and allow for
I do, you know there was plenty of time for musing this buyers to pay more for acquisitions, I just couldn't ignore
past winter), I identified what I believed to be the two what I believed would be the negative effects of the EMV
primary catalysts for ISO and portfolio valuations in 2015: deadline.
30
