Case Study
M&A Evaluation
$1B Portfolio of Credit Card Receivables: Assess viability of potential divestiture
Business Request
01
- Determine viability of divestiture of legacy fuel portfolio
- Partner agreements with wide range of expiry dates, all with different early-exit contractual arrangements
- Complex portfolio consisting of Consumer Co-Brand and both Consumer and Commercial Private Label assets
Relevant Metrics
02
Industry: Automotive Fuels
- Portfolio:
$1B of Credit Card Receivables, across several partners
- Accounts: > 1 million Cardholder Accounts
Financial Factor
03
- Historically profitable portfolio with strong revenues, but at poor efficiency due to fast portfolio turnover
- Long annual streak of declining customer engagement, as portfolio size was over $3B just three years prior
FInal
Result
04
- Assessed NPV for hold vs. sell, based on probable asset terminal values at different time period decision points
- Led financial negotiation with one partner, driving enhanced customer value prop at cheaper cost
Portfolio Summary
Portfolio Metrics
- Portfolio 1: Name Brand Global Company
- 3 Products: Consumer PL, Consumer COB, Commercial PL
- ~$400MM Assets
- Longstanding client (2+ decades)
- Portfolio 2: Name Brand Global Company
- 2 Products: Consumer PL Commercial PL
- ~$400MM Assets
- Client also has extensive corporate banking relationship
- Portfolio 3: Name Brand Global Company
- 2 Products: Consumer PL, Commercial PL
- ~$100MM Assets
- Smaller scale relationship, but profitable business
- Portfolio 4: Name Brand US Company
- 1 Products: Consumer PL
- ~$50MM Assets
- Newer client (<3 years), and struggling to grow asset base
Business Problem
- Historically profitable line of business, with ANR and Sales declining significantly over last couple years
- Sales/ANR declined by more than half in just last 3 years
- Legacy book of business remains profitable, but new accounts transact more and have higher rewards cost and are therefore unprofitable
- Contractual arrangement for Portfolio 2 is unfavorable, but was previously signed due to larger banking relationship
- Poor operating efficiency due to lack of expense leverage: high turn portfolio requiring higher customer touch points, with unfavorable revenue
- Implementation of EMV costly:
- Expensive to replace pump terminals and issue new cards to population
- Not implementing according to EMV regulations carries a significant fraud burden
Analysis Detail
Calculate Net Present Value for Hold vs. Sell
- Assuming no further investment, calculate NPV for Hold according to (1) contractual end date and (2) current financial plan
- NPV for Sell calculated using current market rates, and any penalties for early termination of contract
- Layer in fixed costs that remain for Sell scenario
Customer Segmentation by Vintage
- Create customer segmentation by portfolio, outlining key metrics:
- “Legacy” book of business vs. newer account vintages
- Key performance categories: Sales, Payment Behavior, Changes in Credit Distribution, Rewards Payouts, Interest and Fee Revenue, and NCL
Pricing and Competitive Review
- Compare and contrast APR and Rewards for each customer segment by Legacy vs. New, COB vs PL Consumer vs PL Commercial, and Credit Profile
- Comprehensive Competitor Analysis, looking at differences in Pricing, Technical Capabilities, Customer Experience, Products Offered, and Rewards
Results
Pivot away from Divestiture into further investment, launching new Co-Brand product and renegotiating unprofitable partner segment
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