Two Founders Bolt CoCard to Start a New ISO with Shareholder Equity And Deal Focus

Two executives who helped found CoCard Marketing Group LLC have left the Nashville, Tenn.-based independent sales organization to start their own ISO with what appears to be a unique ownership structure based on shareholding for participating offices. “Our company is going to be based on shares of stock,” says Rick Pylant, formerly chairman and president of CoCard and now chairman of Strategic Payment Systems Inc., tells Digital Transactions News. “As the value of the company increases, so will the value of the shares.”

The new company plans to be an aggressive acquirer of ISOs and merchant portfolios, Pylant says. “You have to be able acquire to grow,” he says.

Altogether, Canton, Mass.-based SPS has attracted 12 CoCard offices, or sub-ISOs, half of which are already producing for SPS. These six account for about 8,000 merchants. The other six, in addition to two offices not affiliated with CoCard, will be producing for SPS soon, says Pylant. They will bring in another 4,000 merchants.

Joining Pylant is Jon Stevens, whose former CoCard office, along with Pylant’s, accounted for about one-third of CoCard’s volume, though the bulk of this came from Stevens’s business. Stevens is chief executive of SPS. The third major shareholder is Todd Stevens, Jon’s brother.

Shareholder equity will allow offices to more clearly gauge the value of their portfolios at any given time, Pylant argues. It will also give sub-ISOs a chance to cash in when shares rise in value and on a potential sale of SPS, in addition to the customary residual income ISOs earn after signing merchants. “It’s three bites of the apple,” says Pylant. “You get a lot larger bang for the buck. That’s never been available to ISOs or sub-ISOs. Until now, their value was tied to the residual value of their portfolio, which today isn’t very high.”

With just three major shareholders, SPS can also move quickly on acquisitions. Lenders that back deals need to get financial data and signatures from only the three, minimizing the time required to close financing. This will be the key to exploiting current market pricing, Pylant argues. “It’s a good time to be buying,” he says. “Portfolios can be purchased relatively cheaply.” Acquisitions will be one of Pylant’s major responsibilities at SPS, he says.

Adil Moussa, who follows the acquiring business as a senior analyst at Aite Group LLC, agrees the shareholding structure at SPS is an innovative step in the ISO business. “It’s an interesting concept,” he says. “There’s some merit to it.” But he also argues it could leave offices with small holdings feeling as if they’re not sharing in the value they are helping to build. And it may not be unique for long. Malcolm Carnahan, president of CoCard, says the company expects next week to implement a shareholding plan of its own with what he calls a “more democratic model of control” than that of SPS.

Carnahan concedes “it’s going to be hard to replace an office the size of Jon’s,” but adds the volume will be made up in a reasonable period of time. Several offices that have been placing business elsewhere are returning to CoCard, he says, while volume generally has been rising. “We’ve had a spurt of new growth,” he says. CoCard claims more than $3 billion in annual volume from more than 25,000 merchants.

Still, SPS will have an edge when it comes to acquisitions. Lining up capital for deals, says Carnahan, “is harder to do” for CoCard, with its ownership structure involving more than 60 sales offices. “That’s why [SPS’s] structure is focused on three majority shareholders,” he notes.