Portfolio Valuations in the Time of Corona

For investors who were watching merchant service portfolio valuations, 2020 was a scary roller coaster. What we thought was going to be a long steep drop of many miles and months turned out to be “just a blip” in valuation. As a result, many of those portfolios are stabilizing and improving to pre-pandemic levels.

An article in the most recent Digital Transactions Journal, “It Was Actually a Blip” shared how investors took a big hit in their portfolio valuations, especially if they contained high concentrations of hospitality merchants.

Merchant service portfolio values have felt like a roller coaster this year. At the beginning of the pandemic, merchant portfolio values dropped dramatically as people could no longer go out and people were just trying to figure out how to use food delivery services.

“If you have a portfolio of all restaurants, certainly it took a hit,” Denise Shomo, president of Cutter, a portfolio buying company, told Digital Transactions. “Those restaurants seem to be back up and running. It’s amazing how quickly these merchants and portfolios have recovered. Industrywide we saw a significant drop in April and May, but significant increases in June and more in July.”

What sparked the increase was that many states began easing their lockdown restrictions, which coincided with good weather and restaurants that embraced outdoor dining, which returned transaction volumes close to their same levels before the pandemic.

Of course, there are some gaps for some portfolios depending on what they do, the services provided, and even their geography. As Digital Transactions said:

A hotel in New York City and a hotel in Sioux City, Iowa, will have very different economics, he says. The Hawkeye state property may have a lower average ticket, but it also may have been more consistent than a property heavily reliant on the tourist trade.

(We don’t want to imply that tourists don’t want to go to Iowa, but Sioux City doesn’t have Broadway. On the other hand, you can’t get a breaded pork tenderloin in New York, so. . .)

The lessons portfolio owners should learn from the pandemic is 1) things will return to normal if you wait patiently, but more importantly, 2) portfolio diversity is important.

Many independent sales organizations may currently only sell into one or two merchant categories, but there are categories that have returned, some that thrived, and some that are still down. Even if you want to diversify, it’s not like you can just pivot and immediately start selling into a more stable merchant categories. You have to get educated about it, learn the peculiarities and nuances, get to know the people involved, and learn what the merchants need and expect.

On the other hand, if an industry has been hard hit, this might be a good chance to gamble and expand your own portfolio by buying up accounts at a discounted rate.

You can even expand your own services as a way to help your merchants find a way to grow. Paul Rianda, a lawyer whose firm provides advice to independent sales organizations and other acquirers, told Digital Transactions that many of his clients are expanding what they offer to their existing clients.

“For example, sales agents servicing restaurants have rolled out software programs to help restaurants take online orders on the Internet and help with order delivery,” said Rianda.

In the end, it looks like things are getting back to normal, at least on the portfolio management front. As Denise Shomo told Digital Transactions, “Businesses are obviously finding a way to survive. When COVID hit, we thought this was going to be a year or longer. But, it was actually a blip.”

If you’re a merchant who has been hit hard by the pandemic and you want to learn how to increase and protect your own sales, or you’re an investor who wants to talk about portfolio investments, Corepay can help. To learn more, please visit our website or call us at (866) 987-1969.

Photo credit: Paulbe75 (Pixabay, Creative Commons 0)