IMGCAP(1)]
This article appears in the Oct. 1, 2009, edition of ISO&Agent Weekly.
International Payments Corp., a San Jose, Calif.-based company, says it is expanding and looking to buy ISOs to build its merchant portfolio.
The company, which has hired David McMackin as its CEO, says in a press release it is backed by $150 million in private funding. McMackin also is president and CEO of AmericaOne Merchant Services Inc., an ISO based at the same location as International Payments.
The company is "targeting medium-sized merchant-services companies" and expects to announce its first acquisition "soon," McMackin says in the release.
A second component of International Payments' growth plan enables it to supply merchant-services companies with capital and access to its technology.
This strategy is "designed to keep talented owners and executives from the acquired companies onboard by partnering with them and sharing the future growth and profits of the company," the company states.
International Payments officials were not available by ISO&Agent Weekly's deadline.
Prices In Flux
The prices International Payments and similar companies pay for their acquisitions are still very much in flux, says Mike McCormack, president of Palma Advisors LLC, a Fort Lauderdale, Fla.-based consulting firm.
"We've seen the market in the doldrums for a long while, then it started to really go down late summer 2008," McCormack says. "Through that period both buyers and sellers were uncertain as to what the bottom was,"he says. Buyers wanted too little money and sellers wanted too much money for their portfolios.
"It seemed there were unrealistic expectations on both sides," McCormack says. Now some of the extreme expectations are beginning to diminish, he says.
"Still, it's not quite there," McCormack says. "There are still buyers trying to pick up assets at garage sale prices," just as there are ISOs wanting top dollar for portfolios not worth it.
International Payments' strategy appears to be sound, says Steve Sion, senior consultant at First Annapolis Consulting Inc., a Linthicum, Md.-based advisory firm.
"It's no question there is a buyer's market," Sion says. "The one caveat we have is that the market is currently saturated with very good, premium portfolios and distressed portfolios as well."
Buying and selling portfolios today involves a great deal of uncertainty, Sion notes.
"There's uncertainty about future industry growth," Sion says, as consumers rebuff credit cards in favor of debit cards, as evidenced by a TowerGroup report that contends debit card growth will continue through 2015 (ISO&Agent Weekly, 8/20).
The direction of same-store sales rates, merchant attrition and transaction-volume growth rates also contribute to the uncertainty, Sion says. Because of that uncertainty, some sale prices may tend to be conservative, he says.
McCormack suggests that anecdotally valuations—an estimate of a portfolio's worth—may be as much as 30% of their peak prices just a couple of years ago. Sion suggests a 20% reduction in that period.
However, there may be a rebound once the full effects of the recession fade away and valuations could grow between 15% and 30%, Sion says.
Private-Equity Funding
In the meantime, McCormack sees another positive: International Payments is backed by private equity.
"Banks in the last year or so have been inert for merchant card deals," McCormack says.
While banks deal with sometimes catastrophic losses in parts of their business, it has forced many to further restrict commercial lending.
McCormack says some banks ask for 50% down on a commercial loan.
"I understand why they're doing it, but it's pretty restrictive," he says. Private equity funding could help break the "logjam," McCormack says.
