If you are contemplating selling your payments business, there are a few key questions to keep in mind. The sale of merchant acquiring and payments company assets presents concerns that are significantly different than the sale of other businesses. Below are five important issues to consider.
1. What do you want to sell?
Selling the company is a very different deal than selling a merchant portfolio. If you sell all or part of a portfolio, you may continue to work under your existing processing agreement. That means minimum deal count or revenue obligations will continue to apply. And a right of first refusal by the processor and non-solicitation clauses may kick in. Further, the buyer may want to convert the merchants to its processing platform. Check to see if your processing agreement permits this.
Selling the entire company will attract a greater multiple, because goodwill and sales rep relationships are also being sold. The buyer may be more interested in the sponsorship relationship itself than in the merchant contracts. If you were savvy enough to obtain a dedicated BIN or have a desirable processor relationship, don’t underestimate the value of that “asset”. A purchase/merger transaction tends to be more involved than a portfolio sale, because there are more assets and contractual relationships to take into consideration.
2. What will you get in exchange?
The most lucrative deal will give you all the money up front. But more typical is that you will get some cash up front and then the remaining amount of cash at some point in the future. During this lag, the buyer has the right to offset against that future cash payment anything you may owe to the buyer, such as trailing chargeback amounts. Or the future payment may be used to satisfy attrition guarantees. Cash/stock deals are also being struck. Here the seller gets some cash at closing, and also stock in the buyer. You are banking on the fact that the purchaser will increase in value, or you will get the benefit of the buyer’s eventual sale. When receiving stock you become an investor in that company, so insist on obtaining representations and warranties from the buyer to back up the stock you will receive.
3. What will your role be after the transaction?
The role of the former owners after the sale is often the most negotiated aspect of the deal. Usually the buyer will want key players to stay on for a year or two to transition the relationship with merchants and agents. Your expertise may be an attractive asset. Try to determine early in the process what you are willing to do after the deal has closed.
4. What kind of guarantees can you live with?
It’s hard to argue that you should not be liable for certain events that occurred prior to the closing date. More difficult is to figure out whether you are willing to owe some of the purchase price back to the buyer if the portfolio experiences attrition or excessive chargebacks. This may depend on the nature of your portfolio: if the portfolio has a low loss rate, you may be okay with this guarantee. If you won’t be able to sleep at night knowing that one large merchant termination or loss will do you in, you should sell the portfolio “as is”, spelling out that you are not guaranteeing the attrition rate or revenue that will be generated from the portfolio.
5. Whose consent do you need?
This issue gets glossed over, but it takes the most time to sort out and has the greatest potential to gum up the deal. Look at all of the contracts involved in the business to determine whether you are free to assign a particular agreement to the buyer. ISO or sales representative contracts may require you to buyout the contract or obtain consent. Look at each contract to determine what is required. Even if you don’t need the contracting party’s consent, you will still need to legally assign some contracts to the purchaser.
These are just a few of the big-picture issues to consider when selling a merchant portfolio or payments business. Every deal has its own peculiarities and stress points. You’ve worked hard to be able to cash in: now take the time to negotiate the deal that maximizes the value of your company.
–Holli Targan, Attorney and Partner, Jaffe, Raitt, Heuer & Weiss, P.C.