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Portfolio Presentation
Ps and Qs

By Ken Musante

ISOs and merchant level salespeople (MLSs) sometimes ask me what their portfolios are worth. Often, they give me a wealth of relevant information; other times I receive only the amount of revenue a portfolio generates, the number of merchants involved and the portfolio's volume.

For any type of valuation to be meaningful, more information is necessary.

For example, when a prospective buyer and seller begin working together, the seller may be reluctant to share information unless the prospective buyer signs a non-disclosure agreement (NDA). The buyer, on the other hand, may be reluctant to even review an NDA without a good idea of the portfolio's size and make-up. A portfolio could be simply too large or small to pique the buyer's interest. Further, it may contain a merchant type that doesn't fit the buyer's model.

Thus, when shopping a portfolio, sellers should prepare a "teaser" page. A teaser provides basic information on the portfolio that will help buyers evaluate the opportunity, but it doesn't give away a seller's identity or disclose proprietary information. Important components of a teaser include:

  • Annual volume and growth rate
  • Number of merchants and growth rate
  • Number of credit/offline debit transactions
  • Net revenue by month
  • Processor(s) used for authorization, settlement and statement processing
  • Percent of Internet, retail or MO/TO transactions
  • Chargeback history
  • The asset being sold: a portfolio, a company, the sales force or a revenue stream.

Once buyers have reviewed a teaser, they can decide whether it makes sense to review and sign an NDA. Although all buyers will have unique follow-up questions, sellers should have the following additional information readily available:

  • Merchant agreements used
  • Merchants by merchant category code (MCC) and state
  • Volume by MCC and state
  • Revenue, volume, average tickets, sales volume (Visa U.S.A., MasterCard International and debit transactions), returns, chargebacks and number of transactions by merchant
  • Sales channels and method by which sales teams are paid
  • Charge-offs by month
  • Revenues by sources other than processing such as leases, terminal sales, rentals, equipment and so forth
  • Attrition by month
  • New merchant sales by month
  • Merchant reserves, if any
  • Ongoing service/support contracts with merchants
  • Contracts with third parties such as gateways or resellers
  • Number of days funds are held for merchants, if applicable
  • Merchant processing bank contract and disclosure as to whether bank identification or interbank card Association numbers are transferable.

Providing this data in hard-copy instead of electronic form makes it more difficult for recipients to forward it to parties that are not bound by its associated NDA. Moreover, preparing this information in advance gives the seller a professional appearance and increases the probability of a higher multiple or fee.

Regardless, the value of a portfolio is only as good as its merchant processing bank contract. Since that topic has been dealt with numerous times in The Green Sheet, I will not delve into it here. However, it's a good idea for anyone planning to execute a merchant bank processing contract to search for related articles on GS Online ( and consult a competent industry attorney.

When information is missing, hard to understand or slow in coming, a portfolio is discounted; buyers assume the seller doesn't know certain facts or is hiding them because they might be damaging. In either case, buyers will reduce their offers.

A teaser and follow-up information take time and effort to assemble, but a portfolio is a valuable asset. Spending time to properly present it will ensure that its sale will render maximum returns.

Ken Musante is President of Humboldt Merchant Services. E-mail him at .

Article published in issue number 060302

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