iPayment Clinches a $130-Million Merchant Deal with First Data

Nashville, Tenn.-based independent sales organization iPayment Inc. expects on Friday to close on its $130 million cash acquisition of a merchant portfolio from First Data Corp. The portfolio consists of 25,000 small merchant accounts generating $9 billion to $10 billion in annual card volume. First Data Merchant Services will continue to process transactions for the accounts. To finance the acquisition, iPayment has expanded its line of credit from $80 million to $180 million from Bank of America and JP Morgan Chase Bank. The company also announced it has agreed with First Data to work together on a so-called Preferred Provider Program under which iPayment will give its sales agents the ability to offer merchants various add-on services from First Data, including gift card processing and lease financing, in one bundled package. The company said in a conference call today it is introducing the program in part at the urging of its sales agents, and hopes it will improve retention rates among both merchants and agents. The latest acquired portfolio includes merchants that are part of trade-association and credit-union relationships that will now be taken over by iPayment, representing two new marketing channels for the processor. The merchants are not aligned with existing merchant-alliance partnerships with FDC. About three quarters of them generate $250,000 or less in annual card volume, iPayment says. The deal is the largest in a string of such acquisitions iPayment has made in the past few years, and comes almost exactly one year after a similar but smaller transaction the processor concluded with First Data. In that deal, iPayment acquired some 18,000 merchant contracts for $55 million in cash. The company says it intends to make further acquisitions, but that they are likely to fall into a target valuation range of $5 million to $20 million. The latest acquisition brings iPayment's total merchant count to about 125,000 locations. Founded in 1992, iPayment processed $9.37 billion in volume in the first nine months of this year. It reported $17.1 million in profit for the nine-month period ended Sept. 30, compared to $5.4 million for the same period in 2003. Revenues for the latest nine-month period were $262.7 million, compared to $160.8 million a year ago. The company went public in the spring of 2003. This summer, iPayment became embroiled in a lawsuit filed in U.S. Bankruptcy Court in Los Angeles alleging fraud related to the company's public offering of stock. The company has denied the allegations and has said it will defend itself vigorously in court. Hearings in the case are expected to continue next month (Digital Transactions News, Dec. 3).