By Adam Hark
For years now the bankcard space has been, and continues to be, a hotbed of merger-and-acquisition activity. Whether at the merchant portfolio or residual level or at the platform level with merchant processing ISOs, plenty of opportunities always exist for buyers and sellers alike.
For those who deal with these kinds of transactions professionally, as intermediaries, there exists the constant need to not just understand and evaluate sellers and sellers' properties, but also the need to understand potential buyers. And for any sellers looking to bring their property to market themselves, that is, "for sale by owner," the ability to properly evaluate potential buyers is of the utmost importance. It can also be extraordinarily challenging.
In the world of card playing, particularly poker, we often hear the terms "cardsharp" and "cardshark" mentioned together in reference to highly skilled players who benefit from exploiting the less informed and less adroit players.
However, in the American lexicon, there seems to have evolved a nuanced distinction between the two terms: cardshark often is not used as a pejorative, but rather as an affirmation that a card player has reached a very high level of play through practice and experience, and although a superior player, the cardshark still approaches the game with a sense of integrity and fair play.
Alternatively, a cardsharp has come to denote a card player who has also reached a very high level of play through practice and experience, but the cardsharp applies that learned gamesmanship in a less than honest manner, often availing himself or herself of deceitful practices that go unnoticed and unchecked by the novice player.
So to apply the card player analogy to sellers of bankcard portfolios and ISOs, and the buyers of these assets, we need to create a profile of these two classes of buyers we frequently face at the other side of the negotiating table. We can then use these as templates to help us better understand who we are dealing with when entering into discussions involving portfolio or ISO sales.
Sharks also possess the wisdom to know that no deal is a good deal unless it works for both buyer and seller. Sharks are generally more objective, letting the financial modeling dictate their decision-making process, and very rarely will take negotiations personally. The sharks play for the long term, have made prior acquisitions and will make future acquisitions, and won't allow themselves to compromise their future ability to transact by overstepping ethical boundaries.
Sharks are disciplined, sometime to the point of ruthlessness. They always know what they can pay, and what they can't pay, and will never veer from their guiding principles (in many cases, the math). Lastly, sharks should be respected. The sharks are lean, mean, buying machines and if you haven't boned up on your Finance 101, you may want to seek counsel from a consultant so that you can negotiate with sharks on equal footing.
Although they subscribe to a similar strategy as sharks when it comes to merchant portfolio and ISO acquisitions (seeking the highest ROI), they differ greatly from sharks in their tactical approach to deals and how they maneuver with sellers. To untrained, and often, unfortunately, unwitting sellers, portfolio sharps are illusionists, seeking to exploit sellers' lack of knowledge. They often manipulate numbers and financial concepts to lure sellers into deals that aren't what they appear to be.
Sharps also tend to create and present deal structures in a Byzantine manner, and even for the most sophisticated sellers, the ability to truly understand the nature of the transaction is severely compromised.
Sounds like there is no good option for sellers, right? No, not right. And here are the reasons:
In both these examples, the disadvantages, such that they are, of having to negotiate with a shark or sharp, are minimized. However, it should be noted that the shark and sharp are two of the more common buyer types you'll run into, and it will serve you well, at the very least, to be able to recognize them for what they are.
If you are going to market with your bankcard property, understand that part of the process involves a bit of self-education in addition to the normal, and expected, "dressing up" of your bankcard property, merchant processing ISO, portfolio or residual stream. Part of that self-education process means putting yourself in a position to be able to recognize the type of buyer you're dealing with.
The other part of that self-education process involves providing yourself with the resources necessary to navigate successfully through the negotiations with that buyer. So do your homework, get on out there and don't be afraid of the game. And to all of you sellers out there, good luck!
Adam Hark is co-founder of MerchantPortfolios.com, a dba of Preston Todd Advisors Inc. With over a decade of experience in the payments industry, Adam specializes in M&A, growth and exit strategies, and asset and enterprise valuation for payments processing and payments technology companies. Adam Hark can be reached at email@example.com or 617-340-8779.
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.Prev Next