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Insights and Expertise

What your merchant

services portfolio is

really worth – Part 2

By George Csahiouni
Tripoli Advisors

n the first article of this two-part series, I discussed several factors shaping merchant portfolio valuations, includ-
ing attrition, merchant concentration risk, revenue per merchant, agent compensation, technology entrenchment
and processor relationship diversity. This installment explains how portfolios are currently being valued. Portfolio
I valuations in today's market are typically expressed as multiples of monthly net residual income, adjusted for the
quality factors described in Part 1 of this series. If you want to review that article, you'll find it in The Green Sheet issue
26:06:02 at https://www.greensheet.com/emagazine.php?article_id=8232.

Most ISO owners and agents think in terms of monthly multiples—"my portfolio is worth 24x"—so that is how I will
frame it here.An important clarification: the valuation ranges that follow reflect the realistic market for individual agent
portfolios and small to midsize ISO portfolios—the types of books that are most commonly bought, sold and financed in
the merchant services ecosystem. These are not the same multiples that large FSPs (Fiserv Service Providers), wholesale
ISOs, or aggregated platforms command. Agents and ISO owners frequently hear about headline multiples of 40x, 50x
or higher and assume that is what their portfolio should be worth, but those numbers are typically achieved through
aggregation, institutional scale, diversified infrastructure and multi-year track records that individual agents and small
ISOs have not yet built. Understanding where your portfolio sits in the market, not where the largest platforms sit, is the
starting point for any realistic valuation conversation.

In practice, valuations fall into three scenarios depending on the transaction structure: a static run-off sale (no future
originations included), a go-forward sale (seller continues originating new merchants exclusively for the buyer), and a
hybrid structure that falls somewhere in between.

Static run-off sale
In a run-off scenario, the buyer is acquiring the existing portfolio as-is with no expectation of future originations from the
seller. The buyer is underwriting the current residual stream and projecting it forward with an attrition discount. This is
the most conservative scenario, and valuations reflect that:

It is worth noting that anomalies exist on both ends of the spectrum. Exceptional portfolios—those with institutional-
grade infrastructure, deeply entrenched technology, minimal attrition and a strategic fit with the right acquirer—have
traded at 40x to 50x monthly residual or higher in the right circumstances.

These are not typical transactions, but they do occur when the portfolio quality, the buyer's strategic objectives, and the
partnership structure align. On the other end, portfolios with undisclosed risk, poor data quality, or structural issues have
traded well below the ranges shown here. The table above represents the realistic market for the majority of transactions.
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