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Education

portfolio that they just purchased. It is worth including years ago, a client of ours sustained huge losses because of
exactly that kind of a provision to purchase agreements a series of events like this.
for the obvious purpose of protecting seller rights in earn-
outs. New management values
Buyer bankruptcy The MBA-ization of the ISO business has, from my
perspective, resulted in a number of transactions in
At times when massive quantities of cash are available to which the buyer's management has had little interest in
ISOs, it can seem unlikely that a buyer will go bankrupt. the long-earned organic and personal relationships that
However, when money becomes harder to obtain, the seller created and nurtured with merchants and the
some buyers will find themselves overextended. An communities in which they are located. Some buyers see
overextended purchaser of ISO portfolios may fail to pay the ISO portfolio through the limited pinhole of near-term
their creditors. profit. The consequences are often disappointing for ISOs
who imbue their business careers with values that are
When a purchaser fails to pay their creditors, and their often greater than revenue alone.
creditors have security over the assets purchased, sellers
may find themselves doubly stung. First, they may be Hopefully, ISOs can sell at just the right price and reap just
deprived of the right to earn and earn out. Second, they the right return without falling into the potholes I've just
may also be deprived of the legal ability to pursue the described.
rightful owner of the portfolio from which the earn-out
is to be paid. In publishing The Green Sheet, neither the author nor the publisher is

The new, rightful owner of the portfolio may, in fact, be engaged in rendering legal, accounting, or other professional services.
the secured creditor of the entity that bought the portfolio If legal advice or other expert assistance is required, the services of a
from the seller. The seller has no contractual relationship competent professional should be sought. For further information on
with the creditor of their buyer. Consequently, the seller this article, please contact Adam Atlas, Attorney at Law by email at
may have a very hard time accessing their earn-out. A few atlas@adamatlas.com or by phone at 514-842-0886.

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