Priority Payment Merges with Cynergy Data As ISO/Processor Consolidation Presses on

The merchant-acquiring business continued its consolidation trend on Wednesday with the news that Priority Payment Systems LLC has merged with Cynergy Data LLC. The deal, terms of which were not disclosed, has created an independent sales organization processing some $20 billion annually for 125,000 merchant clients.

Comvest Partners, a West Palm Beach, Fla.-based private-equity firm that has owned Cynergy since buying the company out of bankruptcy in 2009, retains an unspecified stake in the new entity, known as Priority Holdings LLC. The other owners include the founders of Alpharetta, Ga.-based Priority Payment, among them John V. Priore, president and chief executive. Priore will serve in the same capacity with the merged entity. His brother, Thomas Priore, will serve as chairman.

Afshin Yazdian, chief executive of Long Island City, N.Y.-based Cynergy, will oversee the integration of the two companies in the capacity of executive director.

The combined companies will process through First Data Corp. and Total System Services Inc. (TSYS). Each ISO is contributing roughly the same number of merchants. “This was like a really good marriage,” says Dobbin Prezzano, vice president of marketing and product development at Priority Payment. “Bringing the two [companies] together provides a heck of a lot of muscle.” Prezzano adds that the deal has already closed. “We are one company as we sit,” he tells Digital Transactions News.

Among the advantages of the merger is that “they immediately have size and scale,” says Kim Fitzsimmons, a former chief executive of Cynergy Data who serves as a member of its board. “This will give them a lot more leverage and strength to do other strategic acquisitions.”

Comvest paid $81 million for Cynergy Data two months after the company filed for Chapter 11 reorganization in September 2009. Since then, the 19-year-old processor has had a succession of chief executives, culminating in Yazdian, an attorney who took over in November after long experience with iPayment Inc., a processor based in Thousand Oaks, Calif.

With five other individuals, John Priore founded Priority Payment in 2005 after serving in executive positions with American Express Co., First Data Corp. (then owned by AmEx), Cardservice International, Nova Information Systems (now Elavon), and terminal maker Ingenico.

The combination of Priority Payment and Cynergy follows by two weeks the announcement that Vantiv Inc. had paid $1.65 billion to buy Mercury Payment Systems Inc. Earlier, Vantiv had acquired another ISO, Element Payment Services.

Deals are necessary for growth in acquiring now, observers point out, as attrition forces ISOs and processors to sign more merchants to maintain economies of scale. “Growth is happening by mergers and acquisitions,” says Adil Moussa, principal at AdilConsulting, an Omaha, Neb.-based firm specializing in acquiring. “It’s no longer happening by organic growth. There’s only a certain number of merchants available.”

Moussa estimates ISOs on average sustain merchant attrition rates of about 20% annually. “That makes it really tough,” he says, to maintain the volume levels necessary for discounted pricing from back-end processors. The quickest, and sometimes most efficient, way to replace merchants is through merger with or acquisition of other ISOs, he adds.

While the acquiring business has always seen a number of such deals every year, the difference now is that larger players are involved, Moussa says. “I bet you’re going to see four to six major acquisitions every year, and a bunch of small ones,” he notes. “It’s just the nature of the business. I don’t think there’s more or less acquisitions than in the past, we’re just seeing bigger names.”