[Sean Cash]

I am often asked if I were to buy a funding company and price were no object, who would be on my list? I don't like the question. I know who I would buy but there are very specific reasons why I would choose them, and in that pursuit I wouldn't want to be limited to just "funding companies."

I believe that originators in this industry are incredibly valuable. Supply of capital is very heavy and demand for deals is insatiable. He who generates the leads or drives submissions has a lot of leverage. It's an ISO-centric market.

Why just entertain funders? Why not an ISO or a unique out of the box lead generator? Recently I have encountered a few investment groups that have held similar beliefs and they are on the prowl for originators, ones that can be rolled up into a funder.

In that regard, I am wondering what other people think. Disregarding those that heavily syndicate, ISOs have no liability on MCA/loan performance, are being paid higher commissions, are being courted by funders more aggressively, and they control client relationships. Buying an ISO sounds pretty good.

What do other people think? If you had a choice between buying a funder or buying their best ISOs, which would you choose?

[Cash]

It would depend on the ISO or Funder. Ideally I would rather purchase a Funder if they are 1) profitable 2) can generate leads themselves(has a successful direct shop) 3) have strong management in place and 4) have strong relationships with the RIGHT ISO's.

[Scott Williams]

With either case. What formula do you use to determine the price to pay for a ISO or funder? A certain % times the net or gross income? what %?

[Sean Cash]

With either case. What formula do you use to determine the price to pay for a ISO or funder? A certain % times the net or gross income? what %?

Good question. There's not a lot of precedent for it. In at least one case there's a funder actively buying ISOs where there is an immediate multiple on annual profit paid up front. To prevent their investment from immediately getting washed out by the top talent quitting (which happens in ISO buyouts and alignments all the time), the owners of the ISOs have to continue managing the business for 3 years and they get paid a salary plus profit sharing for that duration. Afterwards they can do whatever they want.

[Chambo]

The issue with buying and ISO to roll into a funder, is that you have immediately limited the ISO's funding capability.

OBVIOUSLY, the fund purchased will have first look. So what do the ISO reps do? If their parent doesn't approve it, is it dead? Do they shop out their declines to other companies....meanwhile everyone knows good and well what they are doing?

[Jared_Weitz]

Good question. There's not a lot of precedent for it. In at least one case there's a funder actively buying ISOs where there is an immediate multiple on annual profit paid up front. To prevent their investment from immediately getting washed out by the top talent quitting (which happens in ISO buyouts and alignments all the time), the owners of the ISOs have to continue managing the business for 3 years and they get paid a salary plus profit sharing for that duration. Afterwards they can do whatever they want.

I think it depends on the buyer. Some big funders who want to grow direct business would want to purchase an originator versus a funder (who depends on ISO's for business). I myself know that being able to generate your own quality demand is not that easy and therefor is coveted by some who can only either A) generate X amount on their own, or B) rely on ISO Business to survive. Also some funders who took big credit lines NEED to put out a certain amount of money per month to avoid unused line fees as well as be able to keep up with the other big players and for those guys too it would be prudent to buy an originator. Just my 2 cents.

[rphillips]

World Business Lenders is interested in purchasing high quality ISOs and potentially smaller funders that self generate their business. Please contact Ron Phillips 212 271 8263

[MCNetwork]

I wouldn't buy a funder because for the most part, they're not really profitable. I wouldn't buy an ISO because that's just a middleman. I would buy an offshore call center and have it fully trained in cash advance sales. Then you'll have access to a lot of income producing opportunities, from lead gen to syndication and beyond. That's where the smart money would go!

[Zach]

I'd buy On Deck and raise my rates by 30%. BAM

[isaacdstern]

Lol Zach

[Great Lendini]

lol

[SimplyMark]

What kind of value would a registered cc processor that is originating 300-400 new merchant accounts per month, originating $1.5mil+ per month in funding from sources outside of the cc portfolio, who is looking to transition into a processor / direct funder have in this hypothetical convo?

[samkota]

What kind of value would a registered cc processor that is originating 300-400 new merchant accounts per month, originating $1.5mil+ per month in funding from sources outside of the cc portfolio, who is looking to transition into a processor / direct funder have in this hypothetical convo?

Very high value.

[Finance1]

Valuation is tricky. I suppose you could analyze 3-4 main components.

1. Staff and sales force
2. Lead generation and marketing methods
3. Existing book of business
4. Portfolio if they have one

Staff and sales force is tricky. Turnover in sales force is pretty common. Lose your heavy hitting sales guys for whatever reason and you have to trim staff. Do the heavy hitters take their book with them or does the buyer get to keep it? Important question. Even if the buyer "keeps the book", it will surely get cannibalized even if there's a non-compete. Too hard to police.

Proven marketing and lead generation campaigns are very valuable. A performing SEO, PPC, or drip mail campaign with established database is worth quite a bit. I wouldn't buy any ISO without that in place already.

The existing book of broker deals would pay out a relatively easy to calculate amount over the next couple years. Dependent on who stays, who goes, and who steals after the shop is bought of course.

If the ISO has a book of direct or syndicated money on the street then that is pretty easy to figure out too.