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Cynergy Data LLC, the big independent sales organization that filed for bankruptcy Sept. 1, got a second lease on life last week when the sale of its assets to The ComVest Group, a private-equity firm with holdings in other payment processors, closed. ComVest paid $81 million for Long Island City, N.Y.-based Cynergy Data. According to Randal McCoy, Cynergy Data's new chief executive, Cynergy Data's balance sheet is cleaned up and the company is ready to pursue new business as the economy slowly recovers. “It's a strong testament to the company that it continued to process thousands of [merchant] applications even during the bankruptcy process,” McCoy tells Digital Transactions News. McCoy also is operating partner of ComVest and chief executive of another processor ComVest controls, Alpharetta, Ga.-based Pipeline Data Inc. Cynergy Data filed for Chapter 11 reorganization after taking on $83 million in debt since 2007 as well as running into accounting troubles and then the recession, which has slammed the credit card transaction volumes of merchant acquirers nationwide (Digital Transactions News, Sept. 2). The bankruptcy petition listed assets of $109.5 million and total debts of $186.2 million. The debt was the major reason Cynergy sought protection from creditors, according to McCoy. “It was really just debt service,” he says. “They were clearly overleveraged.” Apart from its debt obligations, however, he says, “The company was always profitable.” Through relationships that include more than 40 smaller ISOs and 300 agents, Cynergy Data services nearly 80,000 merchants that generate about $10 billion in annualized charge volume. Chicago-based Harris N.A. is the company's sponsoring bank into the Visa and MasterCard networks. The bankruptcy process went as smoothly as could be expected, according to McCoy. The asset sale included all of Cynergy Data's ISO contracts. Cynergy Data was late on only one payment to an ISO, that resulting from the time it took its lenders to agree on payment of obligations, he says. “The merchants were largely unaware of the bankruptcy proceedings,” McCoy says. He adds that merchant applications dropped off a bit during the bankruptcy process because some sales agents worried about the future of the company, but they rebounded in just the past week upon completion of the sale to ComVest. Cynergy Data filed for protection in U.S. Bankruptcy Court in Wilmington, Del., with ComVest as its probable but not assured buyer. A two-part, court-supervised auction process called for Cynergy Data to be shopped. McCoy says a number of would-be buyers emerged. “Four of them bid very aggressively,” he says, declining to identify them. ComVest, however, won the so-called “stalking horse” position that gave it an advantage in the second part of the process. The court approved the sale Oct. 9. ComVest's winning bid of $81 million, including $35 million in equity, was just under three times net residuals (revenues after interchange, payments to downstream ISOs, and certain other expenses), a valuation McCoy calls strong in light of a weak merchant-processor sales market. But he says Cynergy Data is more than just a sales organization. “We really don't view Cynergy as a portfolio deal,” he says. “Cynergy is a technology platform servicing ISOs.” Cynergy Data's former chief executive, Marcelo Paladini, remains with the company as vice chairman and executive vice president of business development. West Palm Beach, Fla.-based ComVest began investing in payment processors about a year ago after Pete Kight, the founder of bill-payment technology provider CheckFree Corp., joined the firm. McCoy worked with Kight at CheckFree, which processor Fiserv Inc. acquired in late 2007.
