The Merchant Portfolio Valuation Process

Are you considering selling your merchant portfolio? If so, is this the right time to sell? Deciding whether and when to sell your merchant portfolio also known as a credit card portfolio, is often a difficult decision. There are no set standards or procedures for valuations in the credit industry. However, having an idea of what investors will view as a positive or negative factor will help you to get an idea of the fair market value of your portfolio.


Reasons for Selling

One question you’ll be asked by investors is why you’re selling your merchant portfolio. You will need to be honest, however, note that they might look adversely upon your selling because of financial loss or business dissolution due to partner conflicts. On the other hand, if you’re selling because you are retiring or want the funds to expand another branch of your business, this will likely be viewed as a positive.


The Management Team

Will you continue to service the merchant portfolio? This will be a question that a savvy investor is sure to ask. If you will continue to service it, do you have a proven management team intact? If the answer is yes to both questions, your credit card portfolio will be more attractive and thus worth more because it gives potential buyers confidence that it will continue to show growth, as well as reduce attrition due to on-going servicing and relationships.


Data and Documentation

Have you kept good data? Do you have copies of contracts and solid accounting records on file? Additionally, can you produce reports that support your profit claims? Some documents that the buyer might be interested in viewing include 12-24 month worth of residual commission files, financial statements, balance sheet, and cash flow statements.


Size and Makeup Of Your Merchant Portfolio

Potential investors will look closely at the makeup of your merchant portfolio. An investor won’t simply look at how many accounts you have, but also what type of merchants are in your portfolio. Some examples; Software integration merchants have low attrition, thus higher portfolio value. Credit card portfolio that consists mostly of retail stores as opposed to online retailers are better valued.

Consider these methodologies when trying to come up with a credit card portfolio valuation for your merchant processing or independent service organization. These five merchant portfolio valuation steps will help you to set a fair valuation to help you to get a good price for all or part of your business.

Frequently Asked Questions

The valuation of a portfolio or residual stream depends on many different factors. There are a number of metrics that are used to determine the value of a portfolio. Income attrition rate, account attrition rate, length of time the portfolio has been in existence, account concentration, margin earned, and merchant mix are example details taken into consideration. The purchase price is determined by calculating a multiple of the average monthly residual and taking into account the factors described above.

Your past twelve months residual reports and a copy of your current ISO Agreement.

Depending on the size of your portfolio, analysis take approximately 1-3 business days.

Most Agent and/or ISO Agreements afford the Processor or ISO a right of first refusal to purchase the portfolio. When we come to an agreed upon purchase price, you would contact your current relationship for approval. According to your existing contract with them, they will have a specified period of time (usually thirty to sixty days), to either approve our offer or purchase the portfolio themselves. If the Processor agrees to the sale, we will continue with our due diligence process and begin to prepare the remaining closing documents.

If you have Sales Agents and/or Referral Relationships, we will review copies of those agreements.

We will provide you with the closing documents which include: an Asset Purchase Agreement, Bill of Sale, Personal Guarantee, and Non-Solicitation Agreement. The remaining document, an Assignment of Residuals Agreement, is usually provided by the ISO/Processor. Once all of those documents are fully executed, CLARUS Merchant Services will ACH funds to your designated bank account.

We do not convert your merchants. They remain on the same processing platform and with the same ISO/Processor.

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