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Table of Contents

Lead Story

Redemption in recession


Industry Update

Companion bill targets interchange fees

And in this corner: Discover

MasterCard IPO soaring

FTC disconnects alleged phone card scam

Prepaid Expo coming to Caesars


Neal Tichelkamp

Select-A-Branch grows ATM network

Travis K. Kircher

Industry Leader

Jim Baumgartner –
Born to do business


Honoring early mavericks

Patti Murphy
The Takoma Group


Street SmartsSM:
Add value to enhance your value

Jason Felts
Advanced Merchant Services

POS as a second language

Dale S. Laszig
DSL Direct LLC

Portfolio sold: How much goes to Uncle Sam?

Michael Laird
Certified Public Accountant

Marketing mishaps to avoid

Nancy Drexler
SignaPay Ltd.

Little to fear in buyer's market

Lane Gordon

Company Profile


New Products

FACTA the future

ID Insight Inc.

Protect data with hidden shield

VeriShield Protect


Dump perfectionism, do reality check



Resource Guide


A Bigger Thing

The Green Sheet Online Edition

June 23, 2008  •  Issue 08:06:02

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Little to fear in buyer's market

By Lane Gordon

In the build-to-sell world of ISOs, sellers assume they are constructing a business book that will have buyers beating down their doors when they are ready to put their enterprise on the market. But, in the present state of the payments industry, ISOs may want to re-evaluate this notion.

We aren't faced with doom and gloom, as some folks may lead payments industry professionals to believe. But, it isn't as easy as it may have been a year ago to find a strong group of qualified potential buyers who are all eager to purchase an ISO or portfolio.

Fading funds

Many of the payments industry cowboys - ISOs that have roughly 1,000 or fewer merchant accounts and were making offers to purchase ISOs with 10,000 to 20,000 merchant accounts - have all but disappeared. That may not be a bad thing, either. Most of these offers weren't worth the paper they were written on - if buyers even bothered to actually write them down.

Similar to the effects of the dot-com bubble burst in 2000, many backers that were funding these buyers are strapped for cash and are no longer eager to deploy funds. Ultimately, the former abundance of interested buyers ended up giving sellers the idea to set unrealistic and unattainable expectations.

We are now seeing the marketplace transition toward a buyer's market. But fear not: We are nowhere near the state of recession presently seen in the U.S. housing sector. Buyers have significantly more opportunities to purchase other ISOs than they did six to 12 months ago.

Those who are looking for particular types of portfolios and ISOs have a better chance of finding something that meets their exact specifications. They can be selective as to what deals they will actually pull the trigger on, as opposed to trying to make something work out that wasn't exactly what they were looking to purchase.

Cleaning to maximize profits

What can sellers do to make their portfolios or ISOs more appealing in the current marketplace, other than obviously reduce their pricing expectations? The best solution is for sellers to put their efforts into cleaning up their ISOs or portfolios as much as possible before putting them on the market.

This tactic is similar to what would be viewed on home improvement television programs that focus on renovations before selling a house for a profit.

So, how do sellers tackle tidying up ISOs and portfolios? First, they should review all of their agent residual agreements and, before selling, either buy them back or negotiate terms of the agent buybacks. Also, all agent and employee nonsolicitation and noncompetition agreements need to be reviewed and organized.

In addition, before a transaction takes place, ISOs should inspect their agreements with an experienced attorney or an adviser.

This will help them understand the potential impact of the transfer or sale of the business or portfolio on the underlying residual stream, and their ability to continue to write for the existing processor or a different processor going forward.

Understanding finances

Financial statements should be reviewed by an accountant or an adviser to determine the gross owner's actual benefits that are normally buried in the financials.

Most private business owners have a multitude of expense items - such as leased vehicles, travel, spousal employment and so forth - that need to be added back to net income for buyers to have a better understanding of how much potential profitability is in it for them.

Unless sellers are publicly traded ISOs that are focused on showing the greatest level of profitability by minimizing the effect of expenses on their bottom line, they most likely have finances that need to be taken out of their profit and loss statement to maximize selling price.

Before sharing residual reports and data with potential buyers, sellers should analyze and separate any financials that could minimize the portfolio's worth. For example, some portfolios contain nontransacting accounts, which typically diminish the value of the overall portfolio.

Sellers can remove the accounts from the portfolio sale altogether if they feel buyers might use the statements as substantial leverage against the portfolio's pricing.

Prepping a sale

Before putting an ISO or portfolio up for sale, sellers should ask themselves the following questions:

If the answer to at least one of these questions is yes, then sellers will go above and beyond to enhance the overall value of the portfolio.

Working for a price

I'm not preaching the end of the world. However, I am suggesting that sellers may actually need to work a little bit harder to achieve the best price and terms possible for their ISOs or portfolios.

Sellers will truly be helping themselves if they find a buyer who is presumed to be the best match to purchase the ISO or portfolio and is willing to make an outstanding offer.

Now, more than ever, I would advise potential sellers not to go ask their best friend - who also owns an ISO and made a buying offer - to complete a transaction without being included in the process. In the present marketplace, it pays to work together to review and organize all financial, corporate and portfolio documentation.

It is possible to stay afloat in the buyer's market, but it won't be easy. Sellers can't slack off when making their portfolios presentable if they plan on attracting the biggest buyer.

Sellers who seek appropriate purchasers, anticipate buyers' concerns and objections, and make strategic marketing plans in advance will be handsomely rewarded once their deals are finalized.

Lane Gordon is Managing Partner at, a company specializing in marketing ISOs and portfolios for sale. Prior to, he spent a number of years working in the payments industry. Gordon holds degrees from the Massachusetts Institute of Technology and Carnegie Mellon University. He can be reached at 866-448-1885, ext. 301;; or by fax at 508-638-6444.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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