Legions of potential investors want to buy a piece of the merchant-acquiring business, but most independent sales organizations would prefer not to sell. Both camps appear to believe the industry represents a safe haven in hard times and promising opportunities during a recovery.
The number of prospective buyers actively seeking deals doubled during the first half of this year, compared with the same period in 2009, says Jamie Savant, a partner in The Strawhecker Group, an Omaha, Neb.-based payments consulting firm. The uptick in interest among buyers began in the fourth quarter of last year and carried over into this year, Savant says.
Many of the suitors are looking to buy into the acquiring business for the first time, notes Ray Sobczyk, head of Strawhecker’s mergers and acquisition division. Outsiders are attracted by the industry’s recurring revenue stream, relatively low risk and modest capital requirements, he says.
Most of the newcomers have cash to invest and thus have little need for leverage, Sobczyk says, adding that “there is debt only in the mega-deals.”
Yet that liquidity and intense interest in the industry have not spawned many deals this year, says Mike McCormack, president of Palma Advisors LLC, a Fort Lauderdale, Fla.-based payments consultancy. He blames the lack of mergers and acquisitions on a “gulf” between the expectations of buyers and sellers.
Investors are seeking bargains based on ISO performance over the last 18 months, a period marked by declining same-store sales and merchant attrition, while sellers are looking back at four to five years of mostly solid performance and view recent troubles as an aberration, McCormack says.
One member of the industry puts it this way: “If you have the capital, you look for bargains.” That observer, Eli Rubin, an account consultant at Simi Valley, Calif.-based BR Merchant Service, also says that “two things happen in a recession—the poor get poorer and the rich get richer.”
Whoever stands to gain, values in the merchant acquiring business have declined from the peaks of 2006 and 2007, but no one seems sure how much, McCormack says. In his view, some potential investors are “testing the bottom of the market, wanting good assets at distressed prices.” Sellers understand their portfolios have lost value, but buyers think they have lost much more value, he says.
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