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This article appeared in the February 26, 2009, edition of ISO&Agent Weekly.
Phoenix Merchant Processing Inc., a Beaverton, Ore.-based ISO, is for sale following nearly two years of control by a court-ordered receivership.
"The plan from the get-go has been to sell the business," Jim Keller, Phoenix CEO, tells ISO&Agent Weekly. Keller says since announcing the sale Feb. 13, he has received a number of inquiries, but no sale yet.
In April 2007, the Federal Trade Commission launched an investigation into deceptive business practices it alleged were made by the previous owners of the ISO, then known as Merchant Processing Inc.
In 2008, the company changed its name to Phoenix Merchant Processing following a $26 million settlement the FTC reached with the defendants. The defendants' operation falsely promised it would save merchants hundreds of thousands of dollars per year in processing fees by offering lower rates than the merchants' established processors, according to the FTC.
The defendants also allegedly offered to buy out merchants' equipment leases as part of their offers, failed to disclose fees and concealed pages of fine print until after merchants signed contracts.
Phoenix is for sale because it has returned to accepted business practices and has stabilized the merchant portfolio, says Keller. Those merchants that felt Merchant Processing wronged them have left, and the sales staff has been rebuilt, Keller says.
Michael A. Grassmueck, the receiver appointed to the case by the U.S. District Court of Oregon in 2007, hired Keller to run the ISO after it had been placed into receivership.
Following these moves, Keller wanted several months operating as Phoenix to establish the ISO's overhauled merchant portfolio. Phoenix has about 2,000 merchants that handle about 300,000 monthly transactions valued at approximately $18 million.
Phoenix is under no deadline to sell, and buyers could choose to buy the entire operation or just the merchant portfolio, Grassmueck says.
Selling In Hard Economy
Neither Grassmueck nor Keller is too concerned about selling the ISO during tough economic times. Other than being subject to a review by federal judge, which could take up to 30 days, sale of the ISO should be similar to any other business deal, Grassmueck says.
"We're selling cash flow," Keller says. "There are going to be people interested in it."
Phoenix's merchant-attrition rate will get close scrutiny, says Adam T. Hark, partner at MerchantPortfolios.com, a Boston-based online portfolio-sales company.
"It's all about attrition," Hark tells ISO&Agent Weekly. "The industry average last year was about 15% annually."
In November, attrition rates for many portfolios with healthy merchant types began averaging 22% because of the economic turmoil, Hark says.
His advice in today's market is usually for sellers to hold onto those portfolio unless there is a need to sell. Waiting until attrition rates drop could improve the prospect of selling the portfolio for a better price.
Buyers also may want to acquire all of Phoenix, especially if it proves that the sales staff is bringing in new merchants, says Mark Dunn, owner of Field Guide Enterprises LLC, a Heartland, Wis.-based consulting firm.
"When you buy the business, you're talking about a sales engine," Dunn says. "With any engine, the buyer wants to know what condition it is in. Is it capable of higher output than in the past?"
Understanding that requires a careful analysis of the prospective company's financials, he says.
Ultimately, the question a buyer wants answered in this instance is, can the sales staff be expected to generate even more deals? Dunn says.
Buyers do not want merchant portfolios subject to attrition without a companion sales staff doing everything to counter that attrition, he says.
"They want a portfolio that is stable and able to grow," Dunn says. "That's why buyers are more interested in the sales engine and its ability to continue to add new merchants."
