The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
Prepare Your Business or Book for Sale | The Art of Selling Your Payments Portfolio or Biz | PEP052
Anthony Malatesta, Principal at Wellesley Hills Financial (https://www.wellesleyhillsfinancial.com/) joins Global Legal Law Firm’s Christopher Dryden and Jeremy Stock to share crucial insights about positioning payment businesses for optimal valuation and successful exits.
What's the real difference between a merely profitable payments business and one that commands premium multiples at exit? According to Anthony Malatesta of Wellesley Hills Financial Group, it comes down to intentional preparation, data analytics, and strategic positioning.
The journey into payments is rarely planned. For Anthony, it began with an unpaid college internship that evolved into a career at the intersection of capital markets and payment processing. This unique perspective allows him to bridge operational realities with financial valuations – precisely what most business owners lack when focused on day-to-day operations.
Most payment professionals are shocked to discover how unprepared their businesses are for potential exit opportunities. When asked for basic operational information like employee compensation structures or downline agent contracts, many admit it would take weeks to compile – a deficiency that can slash millions from transaction values during due diligence. The businesses commanding premium valuations have systematized their operations, reporting, and financial management long before exit opportunities emerge.
While many industry voices have declared "the ISO model is dying" for over a decade, Anthony reveals a more nuanced reality. Traditional processing-only models face compression, but software-integrated payment businesses are securing extraordinary multiples – some reaching 80-90x compared to traditional 30x valuations. The market continues rewarding businesses that increase merchant stickiness through vertical-specific solutions and additional value-added services.
For payment professionals contemplating strategic positioning, Anthony emphasizes "product over price" approaches rather than racing to the bottom with rebates or cash discount programs. The most valuable businesses have shifted from transactional relationships to becoming essential operational partners for their merchants. This approach not only reduces attrition but creates multiple revenue streams that significantly enhance valuation.
Perhaps most critically, Anthony highlights the importance of understanding your business at a granular level – from attrition metrics to sales team performance analytics. These insights enable strategic adjustments that directly impact enterprise value, creating intentional pathways toward successful exits.
Ready to transform how you approach your payments business? Connect with Anthony and his team at MerchantPortfolios.com or WellesleyHillsFinancial.com to discover what your business is truly worth and how to maximize its value for your eventual exit.
Take control of your business future by understanding the true value drivers in your portfolio and building an intentional strategy to maximize them. Your exit value depends on it.
**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**
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https://www.globallegallawfirm.com/
A payments podcast of Global Legal Law Firm
open date, your hire dates and you know what they're all getting paid and what you're paying them in benefits. And someone's like, oh man, it's gonna take me like two weeks. And I was like, okay, well, if something, you were trying to sell your business right now, that'd be a problem or even talking to them about like downline agents yeah, and like what the economics are knowing where all those contracts are totally.
Speaker 1:Terms of all those contracts are right. Like like getting my clients prepared from an organizational level of like. You need to know where all your important documents are, what the terms of all of them are. You need to understand here's how I get all my reporting, here's how I review my reporting. Here's how I do my financials in a consistent and meaningful way where, if we're, if we sell your business and you have to go into accounting diligence and the accounting is not done properly, you could be looking at a massive write-down of your transaction value. Isn't that something you're going to want to know far before you sign an LOI to sell your business at a price you think is good? But now, two weeks later, three weeks later, after we get through diligence, it's going to come down by 30% because we didn't take care of something you easily could have taken care of prior to that.
Speaker 3:Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm. We hope you enjoy this episode. We're really excited we got an in-studio podcast today. Joining us is Anthony Malatesta, from all the way from Boston with Wesley Hills Financial Group, and Chris Dryden, who's always with us. Chris, the founding and managing partner of Global Legal Law Firm. Gentlemen, we're looking forward to a great conversation today. Welcome to the podcast, anthony. Thanks for having me.
Speaker 2:All right. So we're here. Anthony's in the house. We've been trying to get him here for a while. He's the pride of Nahant, massachusetts, right outside of Boston. Anthony's a longtime friend. He actually sits in a parallel universe to our client base that we do, which is really important when we were talking about, you know, actually getting into this particular conversation and kind of where you want to focus. Getting into this particular conversation and kind of where you want to focus and you know, because I think what Anthony does is equally important to what we do in the space, which is really become an advisor for how people are going to enter, operate and then exit the space and so, like it's, a business advisor capacity Known Anthony since he actually fell into the space about a decade ago or so.
Speaker 1:The first person I met at my first regional.
Speaker 2:Yeah, so like it's. You know it's funny how you meet people in the industry because I always watch this with industry participants where you know you go to the shows and everybody knows one another, but then like they change employment but they still don't really know.
Speaker 2:So it's cool because you know we're kind of part of that group. These days we just sort of sit on the fringes a little bit. But, um, anthony's a principal and wellesley hill's financial. So you know, first I I guess the probably the more interesting thing would be is you know, how did you fall into payments? Because I ask everybody like, yeah, I fell into payments, how'd you fall into payments?
Speaker 1:Because I ask everybody like if I fell into payments, how'd you do it? So my job right now is a continuation of an unpaid internship. I got my sophomore year of college, I went to a school outside of Boston called Bentley University. It's a great school for accounting and finance and if you want to do accounting and finance, they had a whole bunch of opportunities within a lot of the big corporate partners that they had, where there's a lot of opportunity there and they gave you a really good foundational training of basics of accounting and finance.
Speaker 1:And I got an internship my sophomore year with a small firm that was doing M&A advisory and they were helping Heartland Payments a bunch of roll-ups for K-12 companies that were doing integrated payment. That was like 2012. So we were super early integrated payment strategy and I started helping them out with doing research and I was like I think there's opportunity here and I never would have guessed it and I stuck with it. I started working part-time throughout college and then, once I started, uh, after school, I was like you know what this is it and basically it's been a direct line from there to here yeah, and the funny thing is is like when I met Anthony, he was as equally lost in the industry.
Speaker 2:You know, kind of as a whole going to a show and trying to figure out like where do I fit into this place? You know, like cause being on the fringe and kind of being on the periphery. You know what we do it supplements, but it's not like a direct operational flow, you know.
Speaker 1:No, totally, and that's maybe, like to this day I think, maybe like the biggest blind spot for for what I do, cause I'm not in the trenches every day signing up merchant accounts. But I think that kind of benefits us because it allows us to have a different perspective than the clients that we operate. I work on the side of things where here's where the capital markets intersect with this industry and that's kind of what fuels business valuations and that's kind of the tide that's been really pushing a lot of the transactional activity in the space, and you don't get to understand that if you're heads down right in merchant accounts, right. So I think that's the perspective that I can share and I've had enough experience with these businesses where I know a lot of the workflows, I know a lot of the pain points of the business owners in the space and I can really help them and empathize with them there but then show them this other perspective that they're not getting.
Speaker 2:Yeah, I mean that was the interesting part is that you know we have the luxury of actually having a single client when we started and so we did everything for them, so we had to know their. I mean I've learned through just owning a business. You know you break it down into three it's marketing, fulfillment and servicing. Right, I mean, like every business, I mean it can be more dynamic than that but it's really kind of like fits it right.
Speaker 2:So we actually got kind of like an up close and personal view of the sales process because we kind of had to know it, to defend it, because it was pretty aggressive yeah, call it the smash and grab and back then it was really different because it wasn't as strategic when you went out to sale. But even to today it always amazes me that there's so many people that we service, especially on the contract side, that want me to go through the Schedule A and give feedback or redline on a Schedule A and I was like no, we usually reserve that for you guys, because you're doing it, this is a business conversation?
Speaker 1:Yeah, totally, this is a legal thing.
Speaker 2:I don't even talk to the business people generally.
Speaker 1:No, totally, and that's something that we see too. Luckily we've got enough contacts in our space and we see enough of these things where we can kind of give our two cents. Not lawyers, we don't give legal advice, but at least we can say, hey, I've read enough of these contracts where I know what the general terms are and can kind of help out. So I kind of get the same thing from the other direction.
Speaker 2:Yeah, I mean that's the funny thing, you guys spend your time in the contracts the way that we spend our times in the residual reports, right. I mean, spend your time in the contracts the way that we spend our times in the residual reports, right. I mean it's like a little on the converse of one another. But I learned, like that, one of the benefits of having just regular conversations with anthony I mean, sometimes we work on transactions together, most of the time we don't, but the nice part is is that the knowledge base that he has supplements what I'm doing a lot of times and really gives new perspective to you know, like when we were talking, coming on, it was like what we do people find value in, right.
Speaker 2:Like a lot of times it takes a little while for people that are especially fledgling business to find value in legal, but then you know it's like your doctor. Or you know you want to find value in the relationships that are important. But then you know it's like your doctor. Or you know you want to find value in the relationships that are important. But I think more and more I look at your relationships with you, have with clients, same clients, and it's equally important, like it's. You have to really think it through.
Speaker 1:I like to think so. I think my long-term clients would agree with you on that. I think one of the things that I definitely want to help people understand about my business and what we do is that it's not just transactional. I kind of had this ethos when we founded Wellesley Hills five years ago, where I kind of wanted the. I couldn't find a way. It was a mouthful, it didn't fit in the marketing slogans, but I was like I want to find a way to do relationship-driven transactions, not have transactional relationships.
Speaker 1:I think a lot of people think of our business as an investment bank, just to kind of give the broad strokes, because we haven't really hit that yet in the conversation and people don't really understand what we do.
Speaker 1:We're an investment bank that focuses on fintech, payments, b2b, software, so anything related to capital markets transactions. Whether you're trying to take on a loan, find a new equity investor, sell your assets whether that's a portfolio or a piece of technology or eventually exit your business, we run those transactions. Whether we do a whole host of support services, whether that is valuation work, analysis, work on portfolios, a whole bunch of analytics I'd like to just get into in the conversation to help drive home the point of like what we provide business owners with the knowledge base of. But I think people just call me up and be like, do you have any portfolios for sale? And I'm like, yeah, I do, I'm happy to help you with that and we can have that conversation. You know, I think a lot of times the business owners don't, or the people who are approaching me don't understand okay, is whatever you have going to help my business or hurt my business if I buy it? Because I've sold a lot of portfolios where I don't think it really helped the buyer, yeah the day.
Speaker 2:But if they wanted to buy it, I help them buy it for sure, and you know well it's it's funny you say that because you know one of the things that we see a lot of times are sour relationships. Right, and you know a lawyer is one of those things that you would want, if you have business partners, to figure out what the rights and duties are. You know, like what's the corporate entity you want, what's the structure. You know and you force the client to maybe look at things a little bit further out than just, hey, we're going to start this business, but with you it's the same thing, because if you were to actually start to talk to them I mean some of the people that I see that are looking for financing it's to buy out their partner. They want to get away from a bad relationship.
Speaker 1:No, plenty of that. Yeah, exactly, and I think the one thing that I would like to do more work of because I think it's what we do best and I think it's where we really provide the best long-term value for our clients is helping them build a plan for their business, and the earlier in the life cycle the better, because to me it's kind of an intentionality thing. It's like what is your intention with this business? What are you trying to build? And I think everybody more or less is looking at some point to have a good exit. It's hard to figure out where and how that occurs, but I think everybody has a goal in mind of you know what dollar amount that is, and or whether that's like the security in life it gets them after, or opening them up to you know level up, to go be with the next partner right, take some chips off the table and then do it again, do it bigger.
Speaker 1:But I don't think a lot of business owners actively plan for that and operate their business with that intention in mind, because I think, especially in the ISO space, it's just sales-driven business. Most of the operators are heads down, putting out whatever fire it is that day or just trying to get the next five 10 deals a month through the door Right. They're not actively thinking about how that next decision is impacting their long term business Totally whether that's time or dollars on building up the internal review processes and analysis that they need to understand of like how their business is actually performing. Now. You can't get to an exit, you know, whatever, whatever your goal number is, without knowing what it's going to take to get there. Do you have the growth that you need? Do you have the profitability do you need? Do you have the kpis and underlying the business that you need to be able to achieve that?
Speaker 2:I think the more important thing is that a lot of people that are starting a business, right, they think exit, but they don't have any of the building blocks to exit, right, it's sort of like, hey, I want to start this business, I want to protect myself, I want to do this and that, and you start talking about corporate entities and they're a little bit lost and it's really, I mean, you can make it less complex, right, I mean you can really break it down and provide it in a digestible format where you know you can, you can teach and give them things that they're not even thinking about on their own, which I think for like, because I find a lot of value in looking at okay, what does my, what does my exit look like from the financial side?
Speaker 2:I think that's like way more important than what we do, right, and but without having the experience in doing what I do, I wouldn't know all the things that you just rattled off. I mean, these are things that I think you kind of stumble into when you are a business owner and you don't have a plan and you're just thinking about, hey, I could make some money, but you know, maybe not on the very front end. But I would think by the time you're making, by the time you want to start, like paying payroll tax, you might want to be thinking some of these things.
Speaker 1:Absolutely, and what are you building at the end of the day? Some of these things Absolutely and what are you building at the end of the day? I had a meeting with my business partners yesterday and the topic came up for us of what our road looks like and how long we want to do it and where our exit opportunities might be for our business. And I'd be hypocritical if I wasn't practicing what I preach here, that I'm trying to help other clients with. I need to take that approach to my own business of what the end game is and where I'm at and and all that. And thankfully I'm young enough and got a long career in front of me where it's not too big of a question right now. Um, it's, it's a ways off.
Speaker 1:So you know the the you know, immediate focus for us is building and helping more clients, but um, it's it's a serious conversation that I think everybody has to really look at their choices and how they're operating, and, to me, I think the best way to help business owners visualize that is through the analytics we provide and going through the business and understanding, okay, what does your portfolio look like, what does your sales channel look like, what's your attrition look like, what does your profitability look like, and how does that all play into your value today? And that's an undertaking that is simpler for me and my team, just because we've built a business around it and been doing it for years. The funny thing is, though, what business owners discover just through going through the exercise with me is many fold, not just from the answers we give them, but, like, here's a really easy one Pulling the data that I need to provide you the insights is a lot more difficult for some business owners than it is for others.
Speaker 2:Yeah, for sure. I mean, depending on what your level of organization service provider is? Yeah, totally no. But even just your level of service provider is.
Speaker 1:Yeah, totally no. But even just your level of organization within your own record, keeping right your own accounting books, well it's funny you say that.
Speaker 2:So look, we do a lot of regulatory defense work and a lot of times it's just responding to subpoenas and you have to. I mean, they're looking for business records, usually for one of your merchants, but you know, you get into a record keeping and retention, destruction slash conversation of what that looks like, what you're required to keep Cause, depending on your sophistication. But I I find that valuable and I want to come back to that. But the thing that I I struggle with cause you were talking about having your own exit. You know it's interesting, cause, yeah, jeremy will attest to Like I call us in this firm like a group of refugees and I think part of my mission in owning this business is to give people a place where they can thrive by just being themselves.
Speaker 2:Right, and when I've thought about exit recently, I've thought about what does that mean for everybody? You know, because it it it does enter my mind of I run a business but, like I employ a lot of people and hopefully provide them a really good place to come and spend their time and work towards something. But you know, when you're talking about exiting, you just rattled off all like the financial parameters and I think about it because what we sell is labor, and so I think about it from the employee context too and kind of like corporate culture, corporate structure, what that looks like.
Speaker 1:No, 1,000%. And we're the same way, right? I mean, we are a five-year-old investment bank, right? And a lot of the other firms in our space are decades and decades or over a hundred years old, right? Like, the culture is very different, and I share the less nimble, totally, yeah, and and and I share your, your value of giving opportunities for people to come and earn a living and make a life for themselves, right? I mean, I think that's getting harder and harder out here these days.
Speaker 2:Where do you see that you find the most value for your clients and what you're doing?
Speaker 1:I would say, ultimately, I think what we do best is representing them for whatever their capital markets needs are.
Speaker 1:So sell side processes for selling a business, selling an asset portfolio selling or setting them up with credit facilities or equity investors, finding the right partners at the right terms.
Speaker 1:We've got a huge network that we've been able to work through over the years so we know which groups in the industry, depending on what a particular business looks like from their own factors, who's going to value that the most aggressively, who's really going to see more value in that than the rest of the market to get them the best outcome for their exit. Now that's the center of the bullseye in terms of, you know, working with a group and that's the culmination of a long time of building a business. Usually, where we can find value before that event is in helping companies be the best prepared for that event, because that event a lot of times is not of our clients' choosing. They get approached by somebody and it seems like a good opportunity, so they want to explore it, and a lot of times when that happens to them I say okay, well, we can certainly help you get a deal done with them, but there's no way of knowing that that's the best outcome, unless we open the process up.
Speaker 2:Well, as I say, that's the great time to look under the hood and figure out where are you missing opportunity.
Speaker 1:But it's a good time to test the market when somebody approaches you and you're thinking about it, because then you have the benefit of having multiple bidders for your asset and really running a competitive process that maximizes your transaction value. But we want to make sure our clients are prepared for that time, if it comes before they think they're ready. Right, I mean, we were talking earlier. I said it's really enlightening for business owners if I'm just asking them on their initial evaluation like, hey, I just need a list of all your employees, open date, your hire dates, and you know what they're all getting paid and what you're paying them in benefits. And someone's like, oh man, it's going to take me like two weeks. And I was like, okay, well, if you were trying to sell your business right now, that'd be a problem.
Speaker 2:Or even talking to them about like downline agents and like what the economics are, knowing where all those contracts are and what the terms of all those contracts are right, like like getting my clients prepared from an organizational level of like.
Speaker 1:You need to know where all your important documents are, what the terms of all of them are. You need to understand here's how I get all my reporting, here's how I review my reporting, here's how I do my financials in a consistent and meaningful way where, if we sell your business and you have to go into accounting diligence and the accounting is not done properly, you could be looking at a massive write-down of your transaction value.
Speaker 1:Isn't that something you're going to want to know far before you sign an LOI to sell your business at a price you think is good, but now, two weeks later, three weeks later, after we get through diligence, it it's going to come down by 30 because we didn't take care of something you easily could have taken care of prior to that or even take care of opportunities, like when I was talking about downline agents I mean a lot of times there's opportunity there to to actually have a liquidation event with them thousand percent and you know, or allow them to tag along and you know, do like a simultaneous close and let them benefit, and especially if you're going to do it on a go-forward, and that's something we can do too in terms of we've set up a lot of debt facilities for companies to help them raise money, to help buy out their downline agents, to increase their cash flow so that when it comes time for them to exit, they're in a more profitable position and we can help them structure those deals in a way where they're going to get more production out of those agents than they did before.
Speaker 1:Right, we can help us set up the incentives properly there. So there's there's a ton to do, and really what drives all of that is analysis work. Like you cannot put your finger in the wind and get a good sense of what your attrition is Really Right, like every ISO owner I've talked to thinks they have the lowest attrition in the world.
Speaker 2:Well, what does it? What does it mean? Like it was funny, I was doing a transaction and it was like kind of a hybrid. I'm working on it right now and part of it's like card payment residuals, the other part's ATM, atm price, which is a totally different animal and totally different valuation, and and they actually had to spin out a portion of it because there's like physical ATMs and then there's contracts to refill and all that. But we there was a kind of a, a term in there of like merchant attrition and we rewrote the clause for like some sort of not you know, minimal performance, like not a guarantee, but you know, like an earn out benchmark of not you know minimal performance, like not a guarantee, but you know like an earn out benchmark of you know if there's a reduction in revenue beyond this. But the first term that was used was merchant attrition and it was like well, that's kind of that's a nebulous term yeah, yeah, does that mean accounts leaving?
Speaker 1:does that mean dollars of revenue loss? Is that dollars of volume? Right? And those are the first layer of metrics, right? I mean, the next layer is if we look at, you know just the accounts that leave, okay, well, was this account even processing any transactions, or did this account ever turn on for processing? Yeah, if you remove those, does your attrition look better or worse? Usually better.
Speaker 2:Yeah, but then your revenue goes down. You know, per account? Yeah, probably not substantially?
Speaker 1:Not substantially, but that's another effect of like, how much revenue are you generating from those accounts? Yeah, and is it more than 10%, 15% of your overall revenue? If so, that's probably a problem, right, because it probably just shows that either you're milking a lot of money from merchants that aren't processing they're not even aware probably Correct, yeah, and that could be a problem down the line or you just have a lot of underperforming accounts that you're never getting turned on. You've got a lot of agents that are submitting deals that they're not activating. I don't know how certain ISOs are set up in terms of is it the home office that does the activations? Is the agent responsible for the activations and making sure a merchant gets live? If it's the agent, you might think an agent's killing it in terms of the number of deals he's submitting, but he might not be getting those accounts activated at a good enough rate.
Speaker 1:We look at a portfolio and we will break it down, not just on the first level, but on the second and third. We had a group that hired us to look at all their sales teams. What is each sales team's track record compared to the others in terms of performance, whether it's on attrition, number of deals submitted. Average volume per deal submitted right, like looking at those metrics and understanding okay, a higher volume per month merchant is a more valuable merchant. On average it might be a little bit lower on the margin, but, all these being equal, in this industry higher volumes equals higher revenues. So, and those merchants typically also have a longer lifespan, a longer shelf life and lower attrition as well, right?
Speaker 1:So if you're running a churn and burn shop out of three or four of your agents and only one of them is actually out there producing good deals, your book's going to skew towards a trend model and that might not be the business you want to run.
Speaker 1:And you can say to your agents hey, this guy's doing great in terms of the number of deals he's submitting. It might be 40% of the actual overall number of deals as these other guys, but his deals are lasting longer, earning more residuals, and that's building a longer-term value of your business. So you want to incentivize the rest of your agents to perform in the same way. And you want to understand what the attrition is like between each of those different factors. So we can break that down in so many different ways and it's honestly just a factor of the quality of the data that we get from our clients. And sometimes the clients are like hey, we're going to talk to our processor to get better data so that we can give you more data, so that you can give us more insight on how to fine-tune what we're doing.
Speaker 2:It's interesting because we have a lot of personalities that come on. They all step in different areas of the business. We have this consistent theme of what is the ISO and what's the future of the ISO. We had Alan Kopelman on and I thought he saw it really well. He's like if you're not selling software, you ain't going to be here long. No, and I think that that's also interesting. It's like breaking down metrics to see who are my merchants and who are my strategic partners, Because I almost think it's less end user now and more. How do I find strategic partners? Software users is one way for sure.
Speaker 1:I would say the deals that I've gotten the craziest multiples on in the past 12 months have all been software driven. Books and businesses that, if they weren't software driven, would go for 30x are getting 80, 90 from some of them. Those are businesses that have established enough scale, where one of them got treated as if it was a software business, right, and it got an overall top line revenue multiple on its overall business as an enterprise and you know. But at the end of the day, 95% of its revenue was generated by merchant processing, so in essence, that's an ISO. They built technology though. Yeah, With the stickiness right.
Speaker 1:Correct yeah, and their customers were all isvs and then they had the merchants from their isvs as well. They generated the processing. Now there's a lot of splits that have to be given and that's an extremely competitive environment. You need the right product for that, but that's the way it's moving. Since I came into the industry, people have been telling me the ISO model is dying. But the economy is too big. Right, like no bank, no card network, no technology company is going to be able to hit every nook and cranny of it right, and there's an overwhelmingly large amount of merchants that if something's wrong, they want to pick up the phone and talk to somebody. They want to have a relationship with somebody and they want to trust that when something goes wrong, that person will help them out. Yeah, for sure.
Speaker 1:And it's an opportunity, I think, for ISOs to build brands around. That. I mean payments is a commodity right At the end of the day, it's ones and zeros growing across the telephone line, aside from some of the other products that get introduced to it. So I don't know another commoditized industry where brand means less than payments.
Speaker 2:Yeah, it's funny because one of the things that is always discussed as a post-close obligation is servicing.
Speaker 1:Yeah, well, I think that's the reason right.
Speaker 2:Yeah, and transitioning, like servicing, between the seller and the buyer, because if you've got a good seller or a seller who's a good servicer, they're there, because somebody's picking up the phone at 10 o'clock at night or whatever. Totally.
Speaker 1:And it's a perception thing for the merchants, because merchants a lot of times don't perceive their payments provider as somebody who provides a service to their business. They look at it as somebody who taxes their business yeah Right, somebody who provides a service to their business, they look at it as somebody who taxes their business, yeah Right. And so if you can change that perceptive perception and build a better relationship with your merchants, it'll come through in the numbers. Like I'll look at books where I'm like you're just selling terminals to these guys and not no software, no, nothing. I'm like your attrition's on the floor, like what are you doing? It's? It was funny. I remember when cash discount first came out I was like in the industry people were like, yeah, it was, it's been a race to the bottom. And you know we've hit the bottom. And I'm like, well, somebody just got a drill and just drilled through the floor with cash discount. We just kept going, yeah, um, they're subterranean now and well, it is because they're doing rebates.
Speaker 2:Dude. I I hear people on their on their entry're like the initial overture is we rebate what we get back to you? I'm like, dude, that's a violation of card brand rules.
Speaker 1:You're not supposed to be doing any of that. What are you talking about Exactly? But?
Speaker 2:people are actually out actively presenting that.
Speaker 1:Yeah, I would caution those people to think about a new strategy of product over price the amount of value that you can give to a merchant. Today in terms of software it's not as difficult as it is to do integrations as it was to do 10 years ago. Totally, the tools are out there, the software products are out there and there are highly specific business solutions for most verticals nowadays. I was talking to somebody who was doing pool and sauna contractor software. They had gotten that specific Whatever you can find and integrate to and sell. I would tell business owners, focus on that, because the more you sell your merchants, not just their payment processing software but their operating system of their software, the more you have an opportunity to now sell them additional products. With the good service you can be competitive on price but they'll be less price resistant if they're getting more things from you, whether that's payroll insurance, HR services, loans. There's a whole bunch of things that you can sell to merchants.
Speaker 1:I think all the integrated banking products are going to be really big, but those are things that will take merchant trust to develop right. Like if a merchant doesn't trust a payment processing provider to process their payments correctly, they're not going to trust them with their operating account. Yeah for sure, Right, so you need to come in, you need to build that rapport, build that cachet with them to be able to get that, build that rapport, build that cachet with them to be able to get that. But I still think there's plenty of opportunity because, no matter who the bank or payment processor is, the market is too big for them to hit everybody and there's opportunity to go out and capture market share with more product.
Speaker 2:Yeah, I agree with you. It's funny because I see like you're talking about pool and sauna contractor software. I mean, I see that level of of if you want to call them like whether it's payroll or you know some form of lending or you know like micro lending or whatever being built into their POS that actually takes data that the POS is tracking. Oh yeah, it takes data that the POS is tracking. I've always thought with a good POS system you can see real-time data as far as what sales and receipts of things are. If it ties into QuickBooks, if you wanted to do underwriting from that, it would be pretty simple and probably a lot better than some of the underwriting I see out there. Oh, totally, that's absolutely possible.
Speaker 1:I mean, like square was really really thoughtful. With that I mean square capital. They can just look and auto approve loans for you. Yeah, exactly Right from the POS, and that's you know. They're a smart technology company, but there's with you.
Speaker 2:We kind of launched into what you were saying. Hey, I want to end this with what do you see out in the marketplace these days? I feel like we've kind of been talking about it.
Speaker 1:No, we have. Activity, I think generally is up. I think there is a high level of demand out there. There is still a large amount of interest from institutional capital in this space, which is always helpful for pushing activity. So a lot of the large institutionally backed operators in the space are still hungry for opportunities, still hungry for acquisitions. So there's still a lot of opportunity out there. I would say from a valuation standpoint it's a bit of a gap right. The premium opportunities that are out there, whether it's growth, cash flow, go forward, commitment to operating and especially if there's vertical specificity and technology attached, those opportunities are getting as high as multiples as I've seen in the last five to six, seven years.
Speaker 3:Anthony, I've got a question for you, and this is in regards to Wellesley Financial. What is something that you would want to say to prospective clients of yours who are coming in the door? What's an issue that you're facing again and again and again that you wish they had done, maybe prior to reaching out to you, or what? In other words, what are some of those hurdles to bringing on new clients in your space?
Speaker 1:Stole my question I would say, understanding what you're trying to achieve with your business long term. I think I get a lot of questions around hey, I want to find that facility, and that's something that we're working on too. I think ISOs in particular have had an extraordinarily hard time getting loans at what I would call affordable terms.
Speaker 2:That's like any small business, though, right, I mean, there's not really a loan product for $500,000 and down for a business necessarily.
Speaker 1:Yeah, I'm talking probably more between like a million and 10 million, which I think for a lot of traditional businesses.
Speaker 2:your community bank has been the one that underlies those loans, but you've got to get to that type of number for them to have a product for you too.
Speaker 1:Correct. Yes, but the funny thing about the banking industry is that they just don't understand the space kind of the local small business lending side. And it's funny because, I mean, every I saw out here I had a contract with a bank at the end of the day, and I think a lot of the banks in this space also see that as like an additional risk. It's like, okay, we're already sponsoring these groups to the tune of tens of millions of dollars, hundreds of millions of dollars in terms of the money we're passing through, we're not going to also loan to them. I think they just see that as an additional risk at times. So lending is one of the areas that we're building out and have solutions for ISOs that are looking for loans for whether it's just general operating or buying up the deadlines we talked about earlier.
Speaker 1:Um, so, having an idea of where you want to go and and questions about how you can make your business better, and I think the way we always think about that is like, well, we have to look at the numbers and help get you an insight of how the performance is right.
Speaker 1:That's to me, the analytical capabilities that we have. I'll toot our own horn. I think we're the best in the industry at the way we analyze these businesses and allowing our clients to be kind of hungry for those answers of hey, what are my KPIs at the levels that I haven't seen yet and what can you tell me? What can you share with me about how I've been operating and be curious in that regard? I think that's something that every business owner is open to. It's a way that me and my partners have looked at our own business around how are we performing? We don't have a merger portfolio that we can cut the numbers up on and check just as easily, but we have our own that we track and we manage, and I would want business owners to think about their own, because sometimes it seems I'm sure you've seen this where some guys the only number that matters at the end of the day is what's in the bank account and if there's money in it, they're cool.
Speaker 2:Yeah, totally no. No, but that's the thing. Like I, I had a, a guy that I've known for a long time and, um, he's an ip attorney in town and so when we have an ip issue I'll bring him on. But I've known him since before either one of us went to law school and he came up. I hadn't seen him, him in maybe like in an office context, maybe like three years or so and he came up and we went out to lunch and he came back to the office and he was looking around.
Speaker 2:He was like, I mean, you guys are really matured and I think what you're talking about is like business maturity, finding a business owner that wants to understand a little bit more of what am I doing? This all for Right, like you know. I mean, sometimes I just think that takes like life maturity to get to that point too, or you know, but I, I I hear what you're saying, cause I feel, I feel like that's one of those things where, like, you got to have a design, you got to have like a, you know, an actual like direction and focus of what you want to do.
Speaker 1:Yeah, I mean mean not to get too hippy dippy with it, but like everything comes out of your intentionality, right, like what are you, what are you trying to do with your life? And then like that's, that's the extension of what you're trying to do with your business. At the end of the day, yeah, I know I agree with you.
Speaker 1:It's. I think about that with regards to my business all the time. It's like I know what I'm doing this for. I want to establish security for myself and my family. I want to create opportunities for other people to help them live their best lives. That's why I'm doing this and I think a lot of folks see that in what they're doing. But the day-to-day can kind of bring them away from that, and especially when it comes to thinking around long-term planning and exit planning, especially like having the goals of okay, I want to get to this amount of revenue or this valuation in the next 12, 24, 36 months Like if you don't know where you're at today, you can't measure where those goals are in the future.
Speaker 1:That's what I want to give business owners. I want to give business owners an understanding of here's where you're at today. If you want to sell in five years, do you want to sell for a certain number? Is that number going to be achievable in five years? Okay, if not now, do we need to readjust your goals in five years? Okay, if not now do we need to readjust your goals? Because if you want to get there in five years, we can put them all together and we can tell you exactly what it'll take to get there. Now, it might not be possible with your current level of employees capitalization, but if it does take changes to those things, well, we can tell you. Okay, if you hire this many more people, here's how much runway you have until profitability becomes an issue.
Speaker 1:If profitability comes an issue, here's how we can raise more money for you.
Speaker 1:If we can raise more money for you, here's what that will get you in terms of new boards, revenue growth, valuation, growth.
Speaker 1:We can create all of those scenarios and game plan as many of them as our clients want. It just takes a little bit of curiosity and willing to go through that process of asking those questions and we can give those answers and we can do the work if we can get the data from them to do that. So that's, that's what we provide for our clients. And then, when that time comes, where they're like, hey, somebody called up and they're they think they can hit my number I say, great, let's make sure and test it in the market, because plenty of times I've had people say that to me and I go out and I bring other buyers to the table and I get them 30 to 40 percent more from the same buyer, just by running a competitive process and making sure that the market validates what they're worth right like. That's where we really help to have the best outcomes, because then we can take what you know our clients thought was a good outcome and turn it into a great outcome yeah, and I think that that's really important.
Speaker 2:It's kind of like I called it you know looking under the hood, but you know, like you don't know what you don't know until somebody, like helps you with it. And so it's I, I just think that's. I think that's really important because you might, you know, test in the waters of the marketplace. It's also testing the waters of like, hey, how can my business improve? And having somebody else look at it from outside in who's got a good background of watching other similar type entities and business operations, I think that's super valuable and how is?
Speaker 1:yeah, how is the market going to perceive your business if somebody like me doesn't look at it? And you're testing the market on your own? Do you know the questions that buyers are going to ask and how they're going to tear up your business and diligence? Are you going to be prepared for that question? Yeah, that's a big one, yeah, diligence.
Speaker 2:And it's getting harder and harder, right, yeah exactly when interest rates went up.
Speaker 2:The lender in one of ours was in New York and I think you were familiar with this. They needed an opinion from a New York counsel during diligence. They didn't even want my opinion because I was, you know, even though I was representing a party. Yep, I didn't care. You know, like it was really interesting because the financial institution was out in new york. So I thought that was I. I thought that was kind of interesting, but having somebody who understands the diligence process and knowing what they'll be looking for, but even before diligence is going to market.
Speaker 1:if there are flaws in your business model, yeah, isn't it better that you and I talk about them before we go to market so we can make a decision? Okay, well, that's a big enough flaw where it's going to cost you X amount of dollars off the valuation you want. Maybe we take six months here's the game plan to fix it. You come back and fix it, then we're ready to go and it's not an issue. Or if we got to go to market now, this you know, for whatever reason, here's how we're going to mitigate it. Here's a game plan. If you know, these are the questions you're going to be asked. Here's how we. Here's how we manage it.
Speaker 2:Yeah, no, I think that's, I think that's more valuable than maybe anything else is getting ready. You know well, look how do people get ahold of you.
Speaker 1:Uh well, zealfinancialcom. We also just launched a brand called MerchantPortfolioscom, where we'll be at all the regionals under that brand. That's strictly for the ISO community. So everything I talked about in terms of analytics, portfolio evaluations, analysis all completely geared towards the ISO channel, lending all that you can find at merchantportfolioscom. And then myself and my team are at Wellesley Hills Financial and I'm at the regionals. I'm at Money 2020.
Speaker 2:Don't worry, we'd flash on your cell phone number right about now.
Speaker 1:Cool, exactly I have a business plan, business and personal phone. You can go on the business phone. That's fine.
Speaker 2:Awesome man. Well, look, I appreciate you coming on, I appreciate you being here.
Speaker 3:Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Law Firm. Visit us online today at globallegallawfirmcom.