M&A Card Portfolio Sale

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Portfolio M&A Process

 

M&A Card Portfolio Sale, A Simple Matter?

To the uninitiated, many think that if one manages a credit card portfolio sale or purchase (or any business enterprise for that matter), after proper due diligence by each counter-party and acceptance of the counter-party’s final binding bid, you sign an agreement and that’s that.  Closing is imminent.  The M&A process for a credit card portfolio sale is not quite that easy.  With a history of over 150 card valuations and card portfolio buy/sell merger transactions, here is what R.K. Hammer experience shows:

After a preliminary non-binding LOI (“Letter of Intent”) by bidders, on site due diligence for two or more finalists, and a final, binding LOI is agreed to, you then each “lawyer-up.”  This, to craft the S & P (“Sale and Purchase Agreement”), plus an Interim Servicing Agreement (post-closing, pre-conversion), and in most cases also an ongoing Agent Card Agreement (for generating new card accounts at the Seller’s, for which they receive a one-time per active account bounty of between $20 – $75; plus annually, some agreed bps on net cardholder sales volume for new accounts generated post-sale).

Card Portfolio Sale

As an example of what all that activity means in terms of workload and time-burn, read on:

Our last card portfolio sale, the M&A process took fourteen days to get required NDA’s done, the written card deal Offering Memorandum out to interest bidders, and to see “preliminary non-binding offers” on the table.

Another fourteen days for offer negotiation, due diligence on site and “final binding offers” to come in.

The subsequent card Sale and Purchase Agreement was 49 pages long, plus 21 Exhibits.  Took ten days, non-stop back and forth “redline revisions” by both parties.

The Interim Card Servicing Agreement was 23 pages long, plus 12 Exhibits. Simultaneously, took five days to complete.  Lots of calls.

The Ongoing Agent Card Agreement was 24 pages long, and had 12 Scheduled Attachments. Simultaneously, took five days to complete.

That’s a lot of negotiating and “wordsmithing.”  Not nearly as simple as some may think.  You not only have to negotiate the initial and final Letter of Intent with the counter party, but then each side has their attorney craft or respond to the initial draft Agreements shown above (often multiple iterations before completion); a series of at least six Agreements/documents each of which have to be negotiated  line by line, word by word.  If you add a commercial card portfolio segment to the consumer card portfolio sale, then the contracts double in number to twelve.

So, start to finish (Letter of Intent to Closing) the quickest period involved for all the steps in any card deal we have been involved in was only 21 days (mortals can only go so long without REM sleep).  That was very unusual, though.  

More often it takes 45 – 60 days to get from LOI to Closing, and in our experience an average of another 120 days post-closing (the “Interim Period”) to finally transfer the portfolio’s card account servicing to the buyer’s accounting and data processing system (the deal “Conversion Period”).

Then – and only then – can you say the M&A process is really done.   Catching your breath, coming up for air, and saying “hello” to your family once again.  That’s the way I see it.

Never fear, if you forget any or all of this, your attorney and your investment banker will walk your team through every step of the way.

Robert Hammer is CEO at R.K. Hammer

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Computing Credit Card Portfolio
Sale Transaction Value

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Financial adjustments after a sale can make a difference from what the portfolio seller originally expected to receive.

After the due diligence has been completed, final bids compared, and the winning bidder for the credit card portfolio selected, the selling organization usually breathes a collective sigh of relief. The process, however, is far from over. There are a number of items which are not typically included in the Letter of Intent, and some not even in the final Definitive Agreement, which nevertheless must be forecast by the seller.

Most of the discussion (indeed, most of the financial impact) centers on the premium paid for the current card assets. Also included in the agreement are discount values for the following categories: delinquent balances (and the contractual definition of exactly what is considered delinquent), closed accounts and values for other “Statused” accounts (lost/stolen, revoked, bankrupt and other charge offs).

An initial premium of 20% for current/open balances, for example, might be reduced by as much as 5% or so by the discounted balances, creating a Gross Transaction Value of 15%. From this amount, the seller must computer other adjustments, which will impact what is ultimately booked into income. The following listed is not intended to be all inclusive, but does cover major adjustments to the premium you might expect as a Seller.

1) Deconversion Expense. The cost you incur to transfer the sold accounts to the buyer’s system
can be large. Many portfolio sellers have no prior experience divesting, and therefore limited working knowledge of the deconversion costs involved. In addition to the financial exposure (which can run into the hundreds of thousands), there will be an extraordinary “time drain” which will occupy your best data processing people’s time…time which could have been spent on normal production work, required regulatory system changes, and other day-to-day operating matters. To minimize the dollars or time required to successfully deconvert puts you at risk. For portfolio sellers who use an outside, third-party processor, there still may be termination penalties which need to be taken into account as well.

2) Operating Write Offs. There will also be a number of related assets which must be written off when you sell your credit card portfolio, items no longer needed. Forms, plastics and certain supplies are examples of those write offs. Assuming you didn’t have a large lead time when the decision to sell was first made, you may be surprised at the amount of stock you have on hand. When supplies are originally purchased, in anticipation of remaining in the business, your people would naturally have taken advantage of quantity buying and put one or two years’ worth into inventory. Since the buyer cannot assume the use of those items (with the card issuing owner’s name on the forms and at least on the reverse of the plastics), their value will be zero. You will even have to pay to have them destroyed. You should prepare for, and estimate, the financial adjustment required for this category.

3) Legal Counsel. Whether you use outside counsel, or allocate the cost of internal counsel, you should forecast the expected cost, and deduct that amount together with other adjustments from Gross Transaction Value. It is not uncommon for several weeks to as much as many months work to be involved in the Definitive Agreement and post-closing Interim Servicing phases of your negotiations. The complexity of each deal is different, and therefore the time involved varies.

4) Unamortized Premiums. If the selling organization previously acquired other credit card
portfolios, there will probably be premium expense incurred during those purchases which have not yet been fully amortized. The remaining unamortized premiums must be applied against the gain when you sell.

5) Escrow Fees. While not every deal involves use of an escrow agent, for those which do, this
expense must also be calculated in advance and included in adjustments.

6) Intermediary Fees. If an investment banker, broker, or other middleman was used, their
advisory fee needs to be included when computing transaction value.

7) Reserve Pulldown. On a positive note, the excess reserve can be pulled into income, and can
serve to offset some of the selling expenses, based upon the excess available.

8) Post-Closing Settlement. In most Definitive Agreements, there will be a period of time following the close of the transaction during which the seller will be responsible for certain expenses. Often limited to three to six months, this period covers items such as: charge backs, charge offs, bankruptcies and other sundry losses which should have been taken by the seller before the closing, but weren’t identified until after the closing. If your collection area lags in the charge off reporting process, there could be a considerable “hit” taken in this category, with bankruptcies and charge offs not showing up until a month or two later, for which the seller can be responsible.

9) Severance and Retention Pay. These two areas can be quite large, and should be carefully determined well in advance. As the result of the sale, and as with any volume-driven business, certain employees will inevitably be dislocated. The cost of severance and bonus for retaining those employees through to a successful deconversion is sometimes split between buyer and seller, based upon negotiation prior to the closing.

10) Liability Accruals. In a credit card divestiture, there may be a mix of certificates and others funding vehicles at various maturities which can now be terminated. Any penalties incurred as a result of early termination would also need to be taken into account when adjusting the Gross Transaction Value.

The total of all adjustments are then netted against Gross Transaction Value to identify the Pre-tax Net Value of the deal. After a deal is done, every seller ultimately identifies these various costs: however, the key is to identify and prepare for expected costs prior to the closing. In this manner, what management and the Board may be expecting, in terms of ultimate P/L impact, will be closer to the actual than if costs are identified “as incurred” during the post-closing period.

Key Credit Card Industry Metrics – 2025

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R.K. HAMMER publishes their annual list of key metrics in terms of profitability,
marketing expenses, R.O.A., R.A.R., Card Portfolio Sale prices, # of Deals by Geo
Region, Consumer Penalty Fees, and more. Here is a summary of the news releases
published so far in January 2026:

Metric Presented (& our comments)
Card Industry pre-tax R.O.A.: 5.05% (individual card products as high as 8.60%
R.O.A.)
Card Industry “Risk-Adjusted” Revenue: 15.89% (Top line Rev. Less c/o net)
Card Portfolio Sale Prices: Ave. Premium for deals done: 11.97% (range 8.30% –
15.64%)

Total Deals Done, by Region since 1990: 849 total (rank, by Region: NE, W, C, SE, M,
SW)
“Active” Card Account sale price: $205 Near Prime: $110; Subprime 0.40 cents/$
Consumer Penalty Fees: (most Late Fees): $12.90B (highest since 2012, & still rising)
Marketing Budgets: average spend of 0.06% of assets (% varies only slightly by asset
size)
2025 Bank Failures: 7 (At risk banks: 59)

Card Industry totals and averages are only disclosed, no
individual entity data is attributed. More information and relevant data may be found on the Website.

Timelines – Credit Card Portfolio Deals

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R.K. Hammer’s experience is 172 card deals and valuation appraisals over 35 years, throughout North American and in bank and card clients from over 50 other countries on 6 continents. Absent unusual circumstances such as hostile takeovers/unfriendly transactions, Card Deals usually go through similar stages and predictable timelines. Here are some highlights of average time frames for the normal card portfolio auction process and protocols…in case you, your CEO, or the Board wondered:

Average time to build a book of prospective Buyers and get prior NDA’s done: 5 days
Average time to create the Offering Memorandum and supporting Data docs: 10 days
Average time for Preliminary Bids to arrive and be examined by your Advisor: 10 days
Average time for Due Diligence on-site for each Finalist Bidder’s version: 1-2 days
Average time for drafting/redrafting Sale and Purchase Agreements: 14 days
(Average time for Regulatory approvals: Depends, TBD)
Average time for all stages to Closing: 30 – 45 days without Regulatory approval required
Fastest deal ever done in our experience, start to Closing: 21 calendar days
Average Post-Closing “Interim Period” to Data Conversion of the Buyer: 128 days.

Credit Card Portfolio Valuation Methodologies

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There are many valuation methods used by the Cards & Payments M&A crowd, and their permutations are endless. Nevertheless, in our 35 years in credit card M&A practice at R.K. Hammer, there are a few most-favored methods that we highlight here.

First, one we use most often, our proprietary “ROA Earnings-Multiple.” Based upon our experience in 172 such deals; valuations and actual done deals out of the industry’s 851 total in the past 3 decades for our 20% market share. It is the only method that uses real sale/purchase prices, unnamed/undisclosed comparables, not theoretical ones. The confidential algorithms and protocols are our own and not made public. If any M&A pro has a similar range and history of experience, you and perhaps only those like you can develop your own ROA “Earnings-Multiple”; i.e., the years of proforma pre-tax card portfolio earnings a Buyer could pay to be the winning bidder.

We then move on to a second valuation method, one that seems to have the favor of card issuers, both Buyers and Sellers, “DCFA,” Discounted Cash Flow Analysis. In valuation dispute Expert Witness appraisals, we also use this one if instructed as a requirement of representing one party or the other in such disputes. Otherwise, we tend to prefer the ROA Earnings-Multiple. With DCFA,  due to myriad set of assumptions and the belief that using a perpetual life span factor for the assumptions required may produce widely differing valuations. We readily concede its use by the M&A world and importantly standardizes the multiple appraisal process, but its use is not on actual recent current/comparable prices. If you have the personal knowledge of real prices in real world recent deals, may we suggest at least considering your own “Earnings-Multiple” approach, but only if your client first agrees that is an acceptable contractually permissive alternative.

Third, another method is a “Cost-per-Acquired Account” (or “Active” Account) approach. Like other models, each credit card product segment has separate valuations & P’L’s, and appraisal protocols; for example, for consumer vs. commercial card accounts, Super Prime, Prime, Near Prime, and private label and prepaid, all have differing P/L’s. We tend to use CPAA as a litmus test of sorts for checking the reliability of the earlier Earnings-Multiple model, but never use as a stand-alone methodology.

The last deal pricing for Mega Deals, whole institution/platform deals, is how many shares and the price per share used as the benchmark sale/purchase price for the transaction. This avoids the use of a resulting more customary “Premium” calculation typically used in the first three methods shown above. In our experience with valuations/card deals, though, only a few Mega Deals used this method; it is still cited, though, as in 2006 and 2025.

Credit Card Portfolio Services

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What happens when our credit card portfolio services provide only the highest card member satisfaction?  Nothing but good things.  For example, when we have better service levels and remember we are in the “Yes We Can” business, our card members become and remain more loyal to our enterprises.

What can that mean?  It can mean lower card member attrition and higher active rates and higher credit utilization rates.  All of these translate into higher ROA/ROE.  It is always less expensive to do right by our card members and provide a highly satisfying set of experiences than it is to find and approve a new card account.  We should test for this satisfaction index by online surveys, polling and focus groups. What’s a good response rate for these card member satisfaction testing tools?  Remember, though, on the front end of the consumer credit life-cycle process:

Only about 0.25% – 0.50% (on a good day) of new card applicant solicitations result in a completed application; pretty dismal by historic card industry standards…  

Back to surveys.  We once sent out a card member feedback survey, randomly sampled from our portfolio, and got a 45% response rate.  We sent those surveys to a subset of card members who had any direct communication with us in the past 30 days (customer service, collections, fraud, etc.); to make sure we were doing right by them, treating them with respect, and giving the best credit card portfolio services level possible.  What we learned from their responses in this survey and other sentiment testing tools was then put into action in our business model going forward.  Nice results, so we thought at the time.

The second example of customer satisfaction testing comes to us from another industry with and even better feedback response rate.  There is a local grocery chain we routinely shop at. Their parent company asks every customer at check out to complete an online survey, with the simple instructions how to do so on every sales slip.  Next, every time you check out, all of the checkers at this store personally ask their customers to complete the online form telling them how they are doing, and circles the simple store feedback process on your sales slip. In addition there is a drawing from among the customers who complete the 5-minute online survey, and the monthly winner receives a cash reward.  So, they are doing at least three things to call you to action.   Pretty savvy.

Credit Card Portfolio Services Results

The results: last month this particular store received positive survey feedback from 90% of their customers.

The lesson for us in the credit card portfolio services business is very important.  First, they actively seek the customer’s feedback, not just buried in the fine print on their transaction slips. Next, they take action on what the customer is saying (read, adjust their business model as needed, in the customer’s eyes).  Then, they reward the customer with only the highest service levels, in every department.  Moreover, they do all this every day with every customer.  That’s a true “commitment to excellence” (importantly, defined by their customers).

Contrast that with our experience at other local markets, who all also have sales slip information for online surveys.  Not one other store in our area actively seeks the shopper’s feedback.  That, as opposed to the local market described above with stellar results; never once have their checkers failed to ask us to complete the survey.  Never once.  It’s the polar opposite of every other market in town.  No surprise that this enterprise is always #1 in their market area, and in their loyal customers’ eyes.

Check Your Own Card Member Sentiment Feedback Process

So, if you think your card member feedback produces impressive results, good for you. Your P/L earnings probably reflect that. For a suggestion on how to improve no matter how high a result you may presently get:  I would put two of the newest MBA ”fast track” employees on the case and have them develop a higher responding online card member feedback tool we can use to see how we are doing.

Why someone new to the company?  Because they just don’t yet know what can’t be done; they come to work every day “thinking outside the proverbial box they have yet to get to know.”

I’d give them (and their assigned mentor in the company) the authority to talk to anyone in any department of the company whose works touches card members directly, and give them 60 days to come up with a better feedback plan of action for us to pursue, presented to the Managing Committee, with weekly progress reports during the two month project to their mentor.

This is a pretty fair new employee training tool, as well, to familiarize them with the various operations in our card company.  See of it might produce better results for you, too.  Any other ideas out there?

Bob Hammer is Founder and CEO of R.K. Hammer and Card Knowledge Factory®

Credit Card Portfolio

Credit Card Portfolio Valuation

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We’ve led the due diligence on 167 credit card portfolio valuation, sales and purchases, with our projects producing an estimated near $1B in pre-tax client profits.

Deciding to sell your credit card portfolio is never an easy decision to reach, especially considering the very reason the sale would generate a profit is the strong current and future earnings from the portfolio. When you divest, you give up that future earnings stream. Still, when an organization needs an immediate boost to earnings or capital, or both, the card portfolio becomes an even stronger contributor to shareholder value through a credit card portfolio sale, partial or total.

24 issuers sold their credit card portfolios last year. They ranged in value from $100MM to over $100Billion. If we are retained as the investment banker to intermediate a portfolio sale, the following services are customarily provided:

Credit Card Portfolio Valuation & Sale

  • A net/present value estimate and transaction expectations are prepared.
  • A book of prospective bidders is built.
  • Bid instructions are prepared.
  • The Offering Memorandum is constructed and distributed to those known portfolio bidders most likely to be interested in the portfolio.
  • Discussions are held with potential bidders clarifying the portfolio characteristics.
  • Due diligence is coordinated, and letters of intent and contracts negotiated.
  • The transaction is closed.
  • The foregoing can usually be accomplished in 45-60 days, although shorter time frames can be accommodated.

For more details please visit our Services Page

Bank Card Consulting

Bank Card Consulting

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It took over twenty-five years and still counting to create a bank card consulting practice with clients from over 50 countries on six continents. Maybe you would like to do the same.  Some of those clients took years to cultivate and develop earlier, though, as is often the case.  Business decisions with bank card clients abroad tend to be based on relationships, rarely first meetings, and good long term relationships simply take time.

Prepare yourself to invest a lot more time burn cost abroad than perhaps you do in the U.S.  It’s an investment in time and energy that I always welcome.

Bank Card Consulting client locations?

In Asia/Pacific:  Hong Kong, Australia, New Zealand, Philippines, Malaysia, China, Taiwan, Thailand, India, Indonesia, Bali, and Singapore.

In Europe: United Kingdom, Ireland, Germany, France, Portugal, and Spain.

In the Caribbean: Antigua, Puerto Rico, and the Dominican Republic.

In Latin America: Mexico, Columbia, Brazil, Ecuador, Chile, Costa Rica, Paraguay, Uruguay, Honduras, and Argentina.

In North America: virtually all the Major card issuers in the U.S. “Top 20”.

Here are ten of the important lessons learned from all those regions of the world, and what it may mean for your enterprise international expansion hopes, if you are inclined to do so.

First, get an experienced local host in each area we would visit for the first time or in which we would attempt to get clients. One never has to do everything for yourself.  Why would you, when someone there can show you the local ropes and customs?  Break a custom or known rule in a new culture and you have probably just equally broken your chances at getting any new business there.

Second, we always had a real curiosity about other lands, other people, other customs and other cultures.  If you aren’t truly interested in learning about other cultures and places, you may not like expanding abroad.

Third, abroad your ways are not necessarily or even often their ways.  One has to be prepared to adapt and learn new ways of doing things.  When in Rome…

Fourth, as communications with bank card clients and friends now transmit at the speed of light (or thought, as you wish), can be in many countries in the same day.  Even half way around the world is easy to accommodate – just as long as you are prepared to get up early or stay up late, with all the time zones between you and the recipient of your scheduled call.  With e-mail and text, it’s even easier.  The back and forth is rarely a problem.  Thanks again, to high tech.  LinkedIn included.

Fifth, if you have a true curiosity about other cultures, you will most likely really enjoy the experience.  We have very fond memories of being with new friends from across the oceans.  If one doesn’t really care or have such curiosity, stay home, as this may not be for you.  The language barrier? Very rarely a problem.  English is spoken virtually everywhere, and we found most international clients like to use it.

Sixth, fully prepare your itinerary, and pack accordingly.  We once spent two weeks going 24,000 miles all around the globe visiting many bank card consulting clients and countries in the process, and only had to have one carry on to do so.  Travel experience will come back to help – or haunt – you.  Travel can be gruesome these days.

Most of your fellow airline travelers are like that; very interesting people who love sharing what they have learned or know about the location you may be both going to.  That has been my experience in dozens of business trips around the globe.   If you enjoy listening to other points of view, you may just do well internationally.  Trouble is, we sometimes talk when we should be listening.

Seventh, Set your watch and become mentally and physically prepared to be on my client’s time zone the moment we step foot on the outbound plane, long before we land in another far away country.  Sleep along the way if you can.

Eighth, devote much more to time doing pre-trip research than on the trip itself.  Who are the players? What are their successes?  What are there sustainable competitive advantages?  What are their possible organizational needs?  What seem to be their guiding values?  Who among the ranks are the future rising stars?  How do they differentiate themselves from their competition?  Are those solutions already in our wheelhouse?

Ninth, be prepared to experience meals like you’ve never seen or tasted before.  Delicacies for the palate at which you might first be a little surprised.  Enjoy trying new things, so dining out with international clients is a real treat.

Tenth, taking a ten or eleven hour plane trip is not for everyone.  But oh my, when you arrive you can be in a very different and very fascinating world.  New friends, new cultures, new ways of doing bank card consulting.  How refreshing it can be, if you are interested.  It’s one way I think R.K. Hammer has such an international presence.  We work hard to earn that reputation every day all over again with our bank card consulting clients, regardless of the continent or the country involved.

There is more, so much more than one could share, but perhaps this will at least get you thinking, get you started.  Also, review the International travel “Check List”. Good luck, my friends!   Got to run, folks, to LAX to catch another plane.  It’s been “banking without borders” for over 26 years now at R.K. Hammer.  I wouldn’t have it any other way, and thank my international friends for the experiences of a lifetime.

That’s the way I see it.

Robert Hammer is Founder and CEO of R.K. Hammer and

Credit Card Segments

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Definitions of various credit card segments differ based upon what risk levels card organizations accept.  That can even change within an organization over time, as strategies change.  For example, the following bandwidth ranges are used by R.K. Hammer and others; but not all card issuers, as different card issuers don’t have identical risk appetites, which then set their own acceptable bandwidth definitions:

Credit Card Segments in the R.K. Hammer Model

Segment FICO
Super Prime: >760
Prime: 700 – 760
Near Prime: 670 – 699
Prepaid: 650 – 669
Private Label: 640 – 649
Subprime: <640

  
“FICO (NYSE: FICO) is a software company based in San Jose, California and founded by Bill Fair and Earl Isaac in 1956. Its FICO score, a measure of consumer credit risk, has become a fixture of consumer lending in the United States”- Wikipedia

Naturally, other factors in one’s credit policy will drive applicants to one segment or another, not just FICO’s.  These, too, vary by organization, as do their respective cardholder pricing models.

Might certain card organizations define these credit card segments differently?  Of course.  It all depends on their view of credit risk at the time, and their present and trending loan loss numbers.  Categories and associated FICO’s can also overlap for segments within the total portfolio, just as credit policy and criteria can evolve over time, too.   Revolving credit has become both art and science.

We have some prime card issuing clients who won’t touch an applicant with less than 720 FICO.  Others who like higher risk accounts (and the fee revenue that comes with them) want all the 640 FICO’s they can get in their subprime portfolio segment.  It just depends on their strategies, objectives, risk appetite and markets.  

No one is right or wrong; whatever gets their hurdle rates achieved for satisfying IRR and EBITDA.  The key, we believe, is “Your data and your definition, consistently applied.”