Merchant Portfolio Sales: “Staging” the Portfolio
Members of our firm who contribute to this blog are constantly reinforcing the importance of a handful of merchant portfolio attributes that weigh very heavily into the valuation and ‘saleability’ of the portfolio asset. Attrition of accounts, CC volume, transactions, and revenue, along with revenue concentration, are prime examples of those particular attributes which figure so prominently into the portfolio valuation and its ability to be sold. And it is surely true, that for many buyers of these properties, certain values in these categories can render the possibility of the merchant portfolio being acquired null.
But merchant portfolios are acquired fairly frequently. And not all merchant portfolios score well in the internal analysis of the attributes specified above. So clearly there are other factors that provide value to would be acquirers of these properties.
So what are these other factors? An expert analyst or consultant can help identify these other factors and work with you to present them in a sensible way that buyers will not just understand, but also recognize the value they contribute to the merchant portfolio, and the ways in which they may mitigate the possible negative aspects of other attributes of the property that may not be as attractive in a sale. This is what we M&A folk call “staging”.
The concept of staging is very much alive and well in the real estate sector. When a seller puts his or her home on the market, they often hire, in conjunction with the broker, a professional who will stage the property through the likes of furniture placement, lighting enhancement, and basic decor ideas, the goal of which is show the property in the best light, and bring out aspects of the property’s value that would otherwise be overlooked by a buyer in a bare-boned presentation of the home. The staging of a merchant portfolio surely doesn’t involve any furniture placement or lighting, however, the concept is identical.
So with an asset that is frequently evaluated solely by quantitative analysis, what other factors, or attributes of the portfolio, can be used to stage the book in a better light to potential buyers?
One of the most often looked at factors is the relationship the seller is willing to have with buyer post-transaction. For example, is the seller getting out of the acquiring industry altogether? Is seller willing to “maintain’ the portfolio post-transaction by continuing to service the existing accounts, and possibly write a little bit of new business here and there to offset losses? Or perhaps seller is willing to become a part of the acquiring entity to the extent that seller will continue to write new business through the buyer’s company?
What the seller is willing to agree to, by way of answering the preceding questions, will dramatically affect the value proposition to the buyer. The difference in pure valuation terms between acquiring a merchant portfolio from a seller who is getting out of the business, and a seller who is going to continue to write new business, is stark. The former, is an attriting asset, where cash flows will dissipate over time. The latter, is an asset wherein cash flows will grow over time.
The takeaway here is that a merchant portfolio for sale should not just be presented in a quantitative light. The merchant portfolio can be, and should be, staged in a manner that showcases all of its value to a prospective buyer, including that which doesn’t show up in the residual reports.