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Merchant-services company Harbortouch Payments LLC has a new private-equity investor in a deal valued at more than $500 million. Searchlight Capital Partners L.P. announced Wednesday it made an investment in Allentown, Pa.-based Harbortouch.
Jared Isaacman, Harbortouch chief executive and founder, says the deal is valued at more than $500 million, but declined to be more specific. Isaacman started the company in 1999 and remains chief executive. Harbortouch’s portfolio has more than 250,000 merchants processing more than $10 billion in annual card volume.
“We will keep doing what we’ve been doing,” Isaacman tells Digital Transactions News. “This is an evolution of the business.” Isaacman says his equity interest in the company has not changed nor has management of the company. “It’s not a cash out. It’s not an exit. It’s not a change in leadership.” The investment validates Harbortouch’s strategy, Isaacman adds.
The change, Isaacman says, is in the private-equity partner. Searchlight Capital is buying Prospect Capital Corp.’s stake in Harbortouch in a transaction that will net Prospect Capital $328 million. Prospect Capital invested $279 million in Harbortouch in 2014, marking its move from having been solely a lender to the payments company to shareholder status.
Harbortouch says the Searchlight Capital investment will be used to grow the company, which, according to Isaacman, counts 90% of its production coming from indirect sales channels, such as ISOs, point-of-sale system resellers, and dealers. He expects Harbortouch to continue to rely on these sales agents.
“Our business will cater to the [independent sales organization], dealer, and channel-partner model that it has relied on since its inception,” Isaacman says.
The new investor’s bounty could mean an expansion into more vertical markets beyond its strength in dining, suggests Scott Calliham, a principal in the merchant-acquiring practice at First Annapolis Consulting, an Annapolis, Md.-based payments advisory firm.
“I don’t think there will be a major shift in their direction [at Harbortouch]. If anything, they will expand into more verticals [beyond restaurants]. Searchlight likes that model, so if anything they’ll be more aggressive,” Calliham tells Digital Transactions News. “They might be more aggressive in trying to sell more integrated solutions [rather than standalone terminals].” First Annapolis was involved in the commercial due diligence for the deal.
Analyst Jared Drieling, business-intelligence manager at The Strawhecker Group, an Omaha, Neb.-based payments consultancy, suggests Harbortouch could one day offer an expanded line of so-called smart POS terminals, which run on apps that include payments but also a wide range of other business-management functions.
“Smart terminals are a hot item for ISOs to go out and sell,” Drieling tells Digital Transactions News. “This [new investment] is an opportunity to grow and take market share away from the smart-terminal players in the market. It’s a window of opportunity for Harbortouch, which is why it’s seeing increased interest from investment companies. [For acquirers], it’s all about adding value-added relationships to create that sticky relationship. If you can provide a smart terminal with value-added services, that becomes pretty sticky [and attractive to investors].”
Harbortouch in 2014 added Apple Pay support to an app consumers can use to pay for meals in restaurants, and in 2013 in released a branded point-of-sale terminal that incorporated near-field communication technology, a smart card reader, and a magnetic-stripe reader.
In 2008, the company, then known as United Bank Card Inc., added a POS system, and in 2004 it debuted a free-terminal program that quickly became a model for other merchant-services providers.
—With additional reporting by John Stewart
