Merchant-portfolio sellers that harbored visions of selling their portfolios at 36 times their monthly residual revenue finally have acquiesced to buyers’ demand to pay less, say observers of the acquiring market. Residual revenue is the recurring transaction revenue acquirers collect from merchants.
“Now we’re seeing sellers adjusting to the economic environment and market conditions,” Adam T. Hark, managing partner of Boston-based MerchantPortfolios.com, tells PaymentsSource. Hark’s company is a broker for merchant-portfolio buyers and sellers.
As recently as 2007, Hark says, sellers held out for high selling prices. Sellers have accepted that those days will not return, he says.
Portfolio buyers today are paying between 22 and 24 times a portfolio’s monthly residual revenue.
“The money was always there,” Hark says. “But sellers had not adjusted to the marketplace.”
Because that realization is sinking in with sellers, merger-and-acquisition activity in the merchant-acquiring and independent sales organization industry is picking up this year. Last year was a very difficult year, “but things are boding well for us” in 2010, Hark says.
Velocity Funding LLC also experienced a difficult 2009, especially during the fourth quarter, says Dean C. Caso, president of the Norwood, Mass.-based merchant-portfolio buyer.
“That has changed dramatically since the beginning of February,” Caso tells PaymentsSource. Since Feb. 1, Caso estimates his firm has spoken with about 15 sellers and issued eight offers. Of those, four sellers accepted the offers.
Caso speculates consolidation activity picked up this year, in part, because many potential sellers “have completed their business plans for 2010 and have decided they may need additional capital to achieve their goals.”