What Do Payment Industry M&A Firms and Brokers Do?

M&A firms and brokers in the payments industry serve as intermediaries between buyers and sellers of merchant portfolios, ISOs, and payment companies. These specialized firms offer services that include:

• Portfolio Valuation: Determining the fair market value of merchant portfolios based on metrics like monthly processing volume, residual income, merchant lifespan, and churn rates.
• Buyer/Seller Matching: Connecting portfolio owners with qualified buyers who align with their specific needs and goals.
• Negotiation Support: Leveraging industry expertise to secure the best possible terms and multiples.
• Due Diligence Facilitation: Managing the complex process of evaluating portfolio quality, contract terms, and potential liabilities.
• Transaction Management: Overseeing the entire sale process from initial consultation to closing.
• Post-Sale Transition: Ensuring a smooth handover of accounts and ongoing merchant relationships.

Working with a specialized M&A firm or broker offers several advantages:

• Market Knowledge: These firms maintain up-to-date information on market trends, portfolio valuation metrics, and current multiples.
• Buyer Networks: Established relationships with strategic buyers, private equity firms, and other potential acquirers.
• Maximized Returns: Professional negotiation typically yields 12-18% higher valuations compared to direct sales.
• Confidentiality: Protecting sensitive business information throughout the sales process.
• Strategic Advice: Guidance on timing, structuring, and positioning to optimize sale outcomes.
• First Right of Refusal Navigation: Expert handling of processor rights that could impact your sale.

Key Qualities to Look For

When selecting an M&A partner to facilitate your portfolio sale or acquisition, consider these essential qualities:

1. Industry Specialization: Look for firms with specific expertise in payments, ISOs, and merchant portfolios—not general business brokers.
2. Proven Track Record: Seek out firms with a history of successful transactions similar to yours.
3. Transparent Process: The firm should clearly explain their approach, timeline, and fee structure.
4. Comprehensive Services: Ensure they offer end-to-end support from valuation through closing.
5. Reputation: Research their standing in the industry through reviews, testimonials, and references.
6. Market Connections: Verify they have established relationships with qualified buyers.
7. Communication Style: Choose partners who communicate frequently and clearly.

Be cautious of M&A firms or brokers that:

• Provide valuations significantly higher than industry standards without justification
• Require large upfront fees before performing any services
• Cannot demonstrate previous experience with payment industry transactions
• Are unwilling to provide references from past clients
• Push for quick decisions without thorough due diligence
• Lack understanding of payment industry terminology and metrics

During your vetting process, ask prospective M&A firms:

1. "How many ISO and merchant portfolio transactions have you completed in the past two years?"
2. "What is your process for determining portfolio valuation?"
3. "Can you provide examples of similar transactions you've facilitated?"
4. "How do you market portfolios to potential buyers while maintaining confidentiality?"
5. "What is your fee structure and when are payments due?"
6. "How do you handle processors' first right of refusal?"
7. "What is your typical timeline from engagement to closing?"
8. "Can you provide references from recent clients?"

Preparation Steps Before Engaging an M&A Firm

To achieve the best possible outcome, consider these preparation steps:

1. Clean Up Your Data: Ensure your merchant and processing data is accurate, organized, and accessible.
2. Address Potential Issues: Resolve any merchant complaints, processing irregularities, or compliance concerns.
3. Document Relationships: Organize written agreements with processors, agents, and referral partners.
4. Optimize Performance: Work to improve performance metrics such as attrition rates and average processing volume.
5. Understand Your Contracts: Review processor agreements for terms that might affect a sale.

Value-Enhancing Portfolio Characteristics

Portfolios with these characteristics typically command higher multiples:

• Low attrition rates (under 15% annually)
• Diverse merchant base across multiple industries
• Limited concentration risk (no single merchant exceeding 5% of revenue)
• Stable or growing processing volumes
• Scalable sales and support processes
• Proprietary technology or unique market positioning

The sale or acquisition of a merchant portfolio or ISO represents a significant financial event. Working with a reputable M&A firm specialized in the payments industry can make the difference between a merely satisfactory transaction and one that maximizes value while protecting relationships you've worked hard to build.

Take time to research potential partners, ask thorough questions, and choose a firm that demonstrates the expertise, connections, and commitment needed to achieve your specific goals. The right M&A partner will serve as your advocate, guide, and negotiator through one of the most important transactions in your payments industry career.