The 1st Thing You Need To Know Before Buying Merchant Processing Portfolios
Before you ‘green-light’ you’re initiative to go out and acquire merchant processing portfolios, you MUST clearly understand the fundamental goals of doing so AND target the specific type of acquisition opportunity which satisfies your objectives. This planning is a very commonly missed step in the process of acquiring merchant portfolios, and like any other acquisition strategy, a failure to understand your acquisition objectives and the appropriate targets will lead to a failed acquisition campaign.
Merchant processing portfolios are unique financial assets. Though to an active investor or strategic acquirer the value to an acquisition with attributes of recurring and predictable revenue, and a known and relatively stable merchant base, is a veritable ‘no-brainer’, the value isn’t always MAXIMIZED in the acquisition as the buyer lacks the fundamental understanding of the attributes of these unique financial assets and how these match up to the needs and goals the buyer is trying to satisfy.
The single most common example of this is the buyer whose goal is to obtain the rights to market and sell to those merchants that are acquired in the transaction. On paper, the acquisition of a merchant portfolio seems to be a well thought out strategy to achieve the buyer’s intended goals. However, the strategy can be, and often is, flawed due to the buyer not fully comprehending the nature of what he’s actually looking to acquire. This is evidenced by the fact that often times buyers looking to acquire “merchant portfolios’ are aware of and make no distinction between a merchant portfolio and a merchant residual, and inevitably find themselves chasing acquisition targets, which by their very nature, preclude buyers from achieving their intended goals.
Using the example above, buyer’s intended goal was to acquire a merchant portfolio, and by doing so, be able to market and sell to the merchants within that portfolio. However, if the buyer has been engaging with agents and agent offices who don’t actually own a merchant portfolio, but rather a merchant residual stream, which does not come with any ownership rights in the merchant contracts, and by extension, the merchants themselves, then the buyer has just expended substantial resources, in both time and money, for an acquisition which has zero utility to himself.
The best way to avoid this scenario or others of the same ilk would be to make sure you ask and answer the following questions BEFORE you start engaging with sellers of merchant portfolios and/or merchant residuals:
1) What am I trying to achieve through this acquisition? i.e. increase the merchant base, cross-sell into the portfolio, pick up accretive transaction count, pick up accretive revenue, etc.
2) What TYPE of merchant processing opportunity do I need to acquire in order to satisfy my goals? i.e. a merchant portfolio or merchant residual
2.A) Do I have a firm understanding of the inherent differences between merchant portfolios and merchant residuals?
Any acquisition, regardless of size, is a significant business decision. As such, both the formulation of the goal or goals of the acquisition, and the nature of the acquisition itself, should be approached with due care and diligence.