4 Ways Private Equity and Family Offices Can Benefit By Consolidating Credit Card Processors
January 30, 2020
Executives managing a portfolio of businesses should look closely at the benefits of consolidating merchant services vendors to reduce credit card processing costs, increase back-office productivity and improve financial reporting.
Investment management companies, led by private equity (PE) firms and family offices, are among the largest and most active buyers of privately held businesses in the U.S. Their success in managing a portfolio of assets and increasing shareholder value has turned these investment vehicles into fundraising powerhouses.
PE firms raised a record $301 billion in 2019, a 52% increase from the prior year and 24% higher than 2017, the previous high-water mark, according to Pitchbook. That’s on top of PE’s $5.8 trillion in global assets under management (AUM) at the end of 2018, estimates McKinsey. Concurrently, capital flowing into family offices also continues to set records. AUM at family offices rose from $4 trillion in 2017 to $5.9 trillion this year, according to Campden Research.
These companies typically own dozens of businesses and are constantly searching to trim costs, improve operational efficiencies and increase profits. Centralizing credit card processing with one merchant services provider is an easy first step toward achieving all three of those goals. Here’s why it works:
1. Lower fees through economies of scale
Consolidating merchant accounts with one credit card processor is one of the quickest ways PE firms and family offices can save money for their portfolio companies. Investment firms often can obtain lower fees from a merchant services company simply through the economies of scale provided by increased transaction volume from all the businesses it manages.
2. Uniform pricing through one credit card processor
Portfolio companies owned by PE firms and family offices often end up paying vastly different per-transaction rates and service fees if they are using different credit card processors. Having all merchant accounts managed by one credit card processor will result in uniform pricing. That’s an important factor for private equity firms and family offices because it makes forecasting, budgeting and financial modeling easier to manage (no more having to create separate calculations for credit card fees for each portfolio company).
3. More efficient financial analysis through data aggregation
Private equity and family office investors require seamless reporting tools to make informed investment decisions at the portfolio and individual company level. Working with multiple merchant services vendors means portfolio managers have to collect, organize and analyze transactional and financial data from several sources. By partnering with one integrated credit card processor, investment firms can have “one-stop shopping” access to real-time data and be able to respond quickly to opportunities (increased sales) and challenges (security threats, fraud) at each of their businesses.
4. Improved financial reporting through integrated platforms
Overseeing the accounting process can be challenging for just about any business, but it can be especially demanding when managing the financials for multiple companies. It becomes increasingly difficult and time-consuming when financial reports – including credit card statements – have to be reconciled for several companies each month. Working with one credit card processor simplifies the monthly closing process, increases accuracy and improves the productivity of the accounting department.
The success of PE firms and family offices depends on the ability of management to increase revenue and control costs. Consolidating credit card processing with one vendor is a quick way for investors to reduce expenses and decrease the administrative effort required to balance the books – so company executives can spend more time identifying and implementing strategies to increase shareholder value.