Your book of business is the collection of clients and associated revenue streams that you have built up over the years within the merchant services industry. By selling your books of business at the right time, you can maximize the value you receive in return. However, in order to get the highest price possible, you must prepare your book of business for sale and market it strategically.
A book of business sale allows merchant service providers to cash out on their years of hard work developing client relationships and securing recurring revenue. Whether you want to retire, pursue a new business venture, or simply reduce your workload, selling your book of business can provide a substantial influx of funds.
This article will cover the key steps you should take to evaluate, prepare and ultimately sell your merchant services book of business for the highest price. We will discuss how to determine the current value of your customer accounts, optimize processes and documentation, engage potential buyers, negotiate sale terms, and finally execute a successful transaction. With proper planning and execution, you can maximize your proceeds from selling your hard-earned book of business.
In order to sell your book of business for the highest possible price, you must first accurately determine its true value. Potential buyers will base their offers primarily on four key factors:
Transaction volume and number of accounts. The total processing volume (in dollars) and the number of active merchant accounts you oversee provide the baseline valuation for your book of business. The higher these figures, the more valuable you will be to a potential buyer.
Average ticket size and transaction frequency. Buyers also consider the average transaction volume per account and how often transactions occur. More frequent but smaller transactions tend to indicate a stable set of customers.
Recurring revenue and contract terms. Longer contract lengths, locked-in rates, and recurring revenue streams from additional products and services make your book of business more valuable. Analyze contracts to determine remaining contract life and exclusivity clauses.
Retention rates and churn. Your business’s customer retention rate and percentage of accounts lost annually (churn rate) indicate the stability of revenue streams. Lower churn means higher valuations.
Gather data on these key factors to determine a baseline valuation for your book of business. Consider engaging an M&A advisory firm that can create a valuation model based on industry comparables. The more comprehensive your valuation analysis, the stronger position you will be in when negotiating a sale.
Before marketing your book of business for sale, you must get everything in order to maximize its attractiveness to potential buyers. Preparation is key to demonstrating the value of your business and customers.
First, clean and organize all customer records. Ensure account information like contact details, contract terms, and transaction histories are up to date, accurate, and easy for a new owner to interpret. Gather customer feedback, reviews, and referral sources to show stability.
Document all processes, systems, and technology integrations involved in running your business. This includes workflows, software, tools used, and any APIs or custom integrations. Thorough documentation alleviates buyer concerns and speeds up a smooth transition.
Identify key contacts at each customer account who can vouch for your service and the strength of the customer relationship. Having enthusiastic references can help reassure buyers and improve their perception of account stickiness.
Work to resolve any outstanding contractual issues, account disputes, or customer complaints that could make your book of business seem riskier. The fewer potential pitfalls, the higher your sale price will be.
Finally, provide buyers with key operating metrics and financial reports that demonstrate your business’s performance and potential. This includes sales and revenue reports as well as customer churn, renewal, and referral rates. A complete data profile strengthens your negotiating position.
Once you have prepared your book of business, the next step is to effectively market it for sale. Your objective is to attract potential buyers who will value your business the most and be willing to pay top dollar.
Start by determining the ideal buyer type. Larger merchant service providers and independent sales organizations may be interested due to synergies and cross-selling opportunities. Private equity firms could view your business as a platform for growth.
Reaching out directly is a good first step. Create a teaser with basic information like transaction volume, number of accounts, and revenue overview. Contact potentially interested buyers to gauge interest.
Listing your business for sale on industry marketplaces geared toward mergers and acquisitions can significantly widen your pool of prospective buyers. Sites specializing in merchant services M&A attract relevant and qualified lookers.
Consider engaging an M&A broker with deep experience selling books of business within merchant services. They understand the intricacies of valuations within the industry and have access to a wide network of likely acquirers. A specialized broker can help you identify and contact the most suitable buyers.
The right marketing strategy depends on the size and complexity of your book of business. For a small, straightforward offering, a targeted direct outreach campaign may suffice. Larger businesses with more nuanced components are often best suited to listings on industry websites and representation by an M&A broker.
Whichever path you choose, focus your marketing efforts on buyers most likely to value the specific attributes of your business, including account and revenue characteristics, longevity, and industry knowledge. Craft your pitch to highlight how acquiring your book of business will accelerate growth or margins for the buyer. With the right positioning and promotion, you can drive competition among prospective acquirers and command a higher sale price.
Once you have identified a potential buyer for your book of business, the real work begins to negotiate a sale at the optimal price and terms.
Start by deciding on your asking price based on the valuation analysis you performed earlier. Books of business in merchant services typically fetch 0.5 to 3 times annual recurring revenue, so use that as a baseline. Value-adding factors like long-term contracts and low churn may warrant a higher multiple.
Expect the buyer to begin with a lower offer to see how flexible you are. Remain firm yet reasonable in your counteroffers, citing the attributes that make your business more valuable. Be prepared to walk away from a deal that does not meet your price expectations.
Consider the structure of the transaction. An asset sale involves selling individual assets like customer accounts and contracts, while a company sale transfers ownership of the entire business entity. Weigh the tax, liability, and deal complexity of each to determine the optimal structure.
Negotiate the detailed terms of any sale contract, including:
By thoroughly researching industry sale comparables, having well-justified price expectations, and being willing to walk away, you maintain leverage through negotiations. Prepare for a lengthy process with multiple offers and counteroffers to achieve terms that maximize the value you receive for your book of business.
Once you have agreed upon a price and terms for selling your book of business, the final step is properly executing the sale transaction.
The buyer will likely want to conduct due diligence to review customer contracts and owner agreements, assess financial records and speak with key account contacts. Cooperate fully and promptly to ease the buyer’s concerns and keep the deal on track.
Clearly establish the method and timing of payment upfront. Common structures include a lump sum payment at closing, staged installment payments, or an agreed equity stake in the acquiring company. Make sure payment is received according to the negotiated terms.
Transition all customer, product, and technology integrations to the new owner as smoothly and quickly as possible. Turn over all documentation, records, and software access. Reassign any contracts under your name.
Announce the change in ownership to your customer base in a positive and reassuring manner. Emphasize the value and service your customers can expect to receive from the new owner. This helps avoid account churn due to the transition.
Remain available, if negotiated, to assist the new owner post-sale for a set period of time or for a defined bonus. Your willingness to help retain customers demonstrates good faith and can cement a mutually beneficial business relationship going forward.
In conclusion, selling your book of business in the merchant services industry at the right time can yield a substantial return on your years of hard work. However, to maximize the value you receive, it is crucial to thoroughly evaluate and prepare your business for sale, target the most suitable buyers, and negotiate optimal terms. With strategic planning, meticulous documentation, and flexibility through negotiations, you can execute a successful book of business transactions that meets your financial and career goals.
Following the steps discussed in this article – from determining a fair valuation to marketing effectively and nailing down final payment details – will help you sell your merchant services book of business for the highest profit and lay the groundwork for future success.