Merchant Portfolios & Merchant Residuals Sourcing Deal Flow

Another inquiry I receive frequently from would be purchasers of merchant portfolios and merchant residuals is ‘how can I find one to buy?’. When confronted with this question my first comment back to the buyer is to confirm they have a proper working knowledge of the organizational hierarchy of the payments space. The analogy I typically make is to that of a pyramid. At the top of the payment industry pyramid are the processors and sponsoring banks; for example, Fiserv and Wells Fargo respectively. Underneath the processors and the sponsoring banks are your super ISO’s, extremely large sales organizations in terms of annual sales volume processed and number of merchant accounts in their portfolio. Some of these organizations are processors too as they have invested in developing proprietary technology (usually a front end processing platform). A good example of this type of organization is the firm EVO. Underneath the super ISO’s in the payments industry pyramid are the organizations where we begin to see merchant portfolio and merchant residual acquisition opportunities. These are your regular ISO’s, typically representing anywhere from 500 to 20,000 merchant accounts in their portfolios. It’s these organizations where you typically see a lot of activity in terms of merchant portfolio acquisitions. The merchant portfolios of ISO’s with direct processing relationships are much more valuable than those of sub-ISO’s of larger organizations as they often represent enough merchants, and write enough new merchant accounts each month, that they have successfully negotiated portability with their processor, and by virtue of that, own their merchant contracts. This means they actually have a merchant portfolio to sell, not just a merchant residual. Lastly, at the bottom of the payments industry pyramid are the organizations that undergird the whole payments vertical…merchant level sales persons, or agents. There are thousand’s of these MLS’s and agents out there and each and every one of them typically has a merchant residual stream they can sell.

Now that you have a better understanding of the organizational hierarchy of the payments industry, you can clearly see that the merchant residual and merchant portfolio market is plenty deep, entirely sufficient to support the buyer demand that exists out there. However, that being said, now the buyer has to find these opportunities and originate deal flow.

The first piece of advice I give to buyers of small merchant portfolios and merchant residuals is to get out there! What I mean by this is that you need to let people know you’re in the market to buy. There are many ways you can go about doing this. Typically I advise buyers to advertise in an industry publication like The Green Sheet (www.greensheet.com), contact an industry attorney, contact a brokerage firm like ours, and finally, and most importantly, network at the regional payments industry meetings like the Midwest Acquirers Association, the Southeast Acquirers Association, and the Western States Acquirers Association.

Beyond that, there are firms that specialize in sourcing proprietary deal flow for buyers, but just keep in mind, they don’t do it for free.

Hopefully this information is helpful to all you would be merchant portfolio and merchant residual buyers out there. Now stop reading this blog and get out there and do some deals!!!