Capital flow in acquiring
ISOs, like cells, are known to continuously form, fuse and divide -new companies appear, others are acquired and some spring from existing ISOs to form a subsidiary or separate business. Industry analysts say shifting market conditions will bring a flurry of ISO activity in the coming months and years, to the benefit of some industry players and detriment of others.
While payments industry acquisitional activity dropped considerably during the recession, sources say we will see a shift toward increased outside investment, more buys between ISOs and a widening loan market.
Acquisitions, mergers and private equity investments will boost many established ISOs, while the strengthening of bigger players and elusiveness of capital for fledgling ISOs will create difficulties for new startups. For startup ISOs that do brave today’s market conditions, turning profitable can take a while. But smart ISOs that develop a specialty and do superior work can nonetheless secure capital and see profits, sources said.
Several recent reports of either completed or potential mergers and acquisitions involving huge payment players may foretell a broader lift in acquiring sector activity.
“In the last couple years, private equity investment, and not just in this space, has slowed down,” said David Konig, Senior Analyst for Robert W. Baird & Co., an investment consultancy. “With the bigger deals now happening, it seems the indication is that private equity as a whole is going to pick up.
“Some of the big private equity firms will step in and buy very big firms like First Data, but for smaller ISOs there’s a lot of potential for private equity as well…This is a sector that probably generates above average interest because of the recurring cash flow.”