Where Have All the ISOs Gone?
Well, the short answer is that some of them have sold the fruits of their labor and have done very well, in particular, some of the ISOs who were early in the business, like Sam Buchbinder and Skip Barker.
ISOs have sold their marketing interest in bankcard marketing agreements? That's right, and depending on how long you have been an ISO, you may or may not have noticed that one ISO in the marketplace has acquired about 25 merchant bankcard portfolios in about a four year period. This company is PMT Services, Inc. of Brentwood, Tennessee, co-founded by Rich Roberts and Greg Daily. PMT, which does business as U.S. Bankcard Center, has been around a little more than 12 years, and has built its business primarily through acquisition. PMT is now the largest ISO in the business, and they are public. PMT has raised its capital from three separate public offerings, receiving $156.7 million, after expenses, from such offerings.
Since 1993, PMT has acquired the merchant bankcard portfolios of such companies as Crown Card Services, Inc., Bankcard America, Inc. (which did business as ABC, American Bankcard in Chicago, and from whom they have purchased six separate portfolios), Consumer Payment Services, Inc., TermNet Merchant Services, Inc., Fairway Marketing, Martin Howe Associates, Data Transfer Associates, and the portfolios of both UMB Bank and Imperial Bank.
In PMT's
10-K which was filed October 15, 1996 they reported as of July 31,
1996, "At that date, the Company's agreement with its principle
processing bank, First National Bank of Omaha ("FNBO"), applied to
approximately 51.8% of the Company's aggregate merchant base."
Later, in the 10-Q filed December 16, 1996, PMT reported, "The Company's agreement with its primary processing bank was amended to require the Company to purchase the service provider's merchant accounts by January 31, 1998." In addition, PMT announced an alliance with National Processing of Louisville, KY (NPC) in September of 1996. If so many different relationships are surprising to you, then you may also find it surprising that Card Service International's Chuck Burtzloff is one of the Directors of PMT.
PMT stock (Nasdaq/NM: PMTS) has been trading around $13.50, with a 52 week high of $29.62 and low of $11.50 as of 2/12/97. PMT has about 33 million shares outstanding.
That's right, this means that the current market price as of 2/12/97 places PMT value at about $447 million (33,120,000 shares x $13.50).
The prices that PMT has paid for the books of business aquired over the last four years has varied, based on numerous factors having to do with the anticipated profitability of the books of business, and more recently, on an accounting treatment called "pooling of interest," in which stock of PMT is traded for the stock of the acquired company. Examples of this treatment are the recent transactions with Martin Howe Associates and Data Transfer Associates. Some examples of reported ISO portfolio prices are:
1. ABC sold a 7,000-account portfolio to PMT for $7.7 million ($1,100 an account) and received another $2.5 million when the business was moved to a designated PMT bank processor.
2. ABC sold another 7,000-account portfolio, which had reported annual revenue of 300 million for $6.3million ($900 an account, or 2.1% of gross revenue).
3. UMB bank sold a 15,000-account portfolio to PMT for $13.5 million, which was reported to have an annual revenue of $1.4 billion ($900 an account or .9% of gross revenue).
4. Imperial Bank sold a 5,000-account portfolio to PMT for $8.7 Million, which would equate to a price of about $1,740 per account.
Since 1993, PMT reports that it has acquired nearly 100,000 merchant accounts and has, according to their principal processor, an attrition level of 1.1% of merchant bankcard processing volume per month. PMT's principle volume comes from California, Florida, New York, and Texas, and at mid-1996 PMT had about 330 employees with 43 employees in Telesales jobs and 66 Field Sales Representatives.
What about PMT earnings you ask? PMT reported $149.8 million in gross sales in fiscal 1996, ending July 31, 1996, with $8.6 million after tax earnings. That means that PMT is currently valued by the marketplace at $447 million and is earning $8.6 million a year. (Reported price earnings ratio is 39.71). PMT has been diligent about reporting the risks of investing in their stock, noting fraud risk, industry price increases, attrition, risk associated with growth by portfolio acquisition, and registration termination as an ISO if Visa or MasterCard changed ISO rules, to name just a few. In addition, the acquisitions have not been without legal problems. PMT reports in their 10-K SEC filing on October 15, 1996, that, "The company is a defendant in a lawsuit styled Glenn Francis, et al. V. Bankcard America, Inc., PMT Services, Inc., d/b/a U.S. Bankcard, et al., Docket no. 93-C5510, which is pending in the U.S. District Court for the Northern District of Illinois." While the above case is complex, the complainant basically believes that Bankard America, Inc. (ABC of Chicago), owes him for residual income, and the suit seeks, among other things, to void the sale to PMT of the merchant accounts in dispute.
I would hope that this story about the success of PMT, the fact that an ISO has gone public, or even the fact that they have been purchasing ISO portfolios, will make you feel better about what you are doing with your business. Your bankcard portfolio might be worth more than you think.
For more information on PMT check the Web for Press Releases or 10-K Security and Exchange Commission filings. Stock info courtesy of EDGAR® ONLINE.
