ISO Buyers Looking for Balanced, Low-Attrition Portfolios, Finance Exec Says

The economy is still humming along, but that doesn’t mean independent sales organization owners and executives are having an easy time finding capital when they need or want it.

“The credit markets are tight for the payments-industry space,” Jon Engleking, chief operating officer at Super G Capital LLC, said this week at the Southeast Acquirers Association annual conference in Atlanta. Newport Beach, Calif.-based Super G Capital helps ISOs, insurance brokerages, and software-as-a-service companies obtain loans.

Engleking, a speaker at a session about ISO financing, said this tightness is less a result of economic conditions and more a statement about the nature of the ISO business, which he says is a relatively small and often misunderstood market for equity and debt-financing providers. Banks, especially, don’t understand that ISOs have so-called residuals, or recurring revenue streams, against which loans can be made, and instead prefer clients with assets such as equipment and inventory, he said.

“And venture firms don’t like investing in small to mid-size ISOs,” usually preferring bigger clients in the payments industry, he added.

Most ISOs seeking capital are doing so to finance an acquisition, Engleking said. Other prominent reasons include acquiring new technology or equipment, opening a new location, supporting a marketing campaign, or buying out a partner.

ISO executives looking for an exit by selling their entire portfolio will get higher multiples on revenues if their merchants are spread across multiple industries, and the portfolio has relatively low attrition, according to Engleking. “The buyers are looking for a well-balanced portfolio,” he said. “You’re going to get a higher multiple the more diversified your portfolio is.”

But Engleking cautioned that sellers should be forthright with potential buyers from the get-go. “Make sure you disclose everything up-front,” he said. “I’ve seen so many deals killed at the one-yard line.”

Engleking said Super G Capital has provided more than $200 million in financing to ISOs, value-added resellers, and independent software vendors since its founding in 2008.