Mercury Payment Systems and the ISV Model
The private equity firm Silver Lake announced on May 12, 2014 the intent to sell Mercury Payment Systems to Vantiv for approximately $1.65B. Prior to the sale, Mercury filed an S-1 in preparation for an IPO, giving a rare public insight into the performance of the independent software vendor (“ISV”) distribution model and consequently, insight into the approximately 18 times EBITDA purchase price that Vantiv paid for the company.
Mercury is a leading provider of acquiring services sold through the ISV and dealer channel. In the ISV model, software developers and their dealers enter into strategic business development deals with merchant acquirers, certify their solutions on the acquirers’ gateways or front ends, and refer new installations to the acquirer. The software developers and their dealers have proven highly influential on the choice of acquirer by merchants who are installing the ISV’s solution.
Figure 1: Net Revenue v. EBITDA, FYE 2011-2013
Mercury has posted remarkable growth performance since 2011. From 2011 to 2013 Mercury’s merchant base has grown by 25,400 merchants to 88,700, a CAGR of 18%, and its sales volume has grown nearly 20% to over $34 billion. Net revenue has grown even faster to $237M, a CAGR of 24%. And EBITDA grew 23% annually while EBITDA margin essentially remained flat. The growth in partner ISV’s and dealers grew 9% over the same time period to over 3,000, indicating that Mercury is signing larger and/or more productive ISV’s and dealers or making existing partners more productive.
This growth is remarkable in an environment where most acquirers consider growth in the high single digits a good outcome. Of course, this growth reflects Mercury’s performance as an individual company, but it also reflects the power of ISV distribution model.
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