One of Durango's most successful
companies started with little more than a history of failure, a mound of credit-card debt and one great
Now that Mercury Payment Systems has sold a controlling stake to the private equity firm Silver Lake, the company's
early struggles show how founders Jeff and Marc Katz persisted to turn Mercury into an industry leader.
Mercury now is the 23rd-largest payment processor in the United States and among the fastest growing, according to
The Nilson Report, an industry newsletter.
The company processed nearly $11.9 billion in credit-card transactions in 2009 and employs 360 workers in Durango and
Success for Mercury was far from assured.
Jeff Katz's first payment-processing business failed, a result of a dispute with a partner company followed by a
He then worked as a financial planner, biding his time to get back into processing credit-card payments.
"I was in New York at the time, and I did a business plan and sent it to my brother to give me his feedback, and he
told me - I'm still shocked that he actually said - 'I want to be your partner,'" Jeff Katz said in a recent
"But he said, 'Move to Durango. This is where I am, this is where my family is.'"
And so Mercury Payment Systems was born in 2001.
Jeff's older brother, Marc, had sold a high-tech company in Seattle and moved to Durango in 1992 to escape the rainy
Northwest. Marc Katz then started Durango Computer Classroom, a business that trained computer users on certain
Durango Computer Classroom stagnated in the tech bust, and Marc Katz looked for new opportunities.
"All of the sudden, I was running at half of the capacity we had geared up for," he said. "It was not an encouraging, happy time. So I started thinking about other things to do to supplement that."
Then Jeff Katz's business proposal arrived.
"Jeff's an idea kind of guy," Marc Katz said. "He's always coming up with ideas. For 20 years, he had been telling me
his ideas, and usually, I didn't like them.
"This was a good idea."
Changing the industry
Before Mercury, most dealers of point-of-sale
systems, who sell and service the payment systems, made little money from credit-card processing.
"The dealer had to do all the work, but somebody else was getting all the money," Marc Katz said. "Jeff saw that for
the opportunity that it was. Those guys have the ability to influence the merchant, and since they're the ones doing
all the work anyway, they are the ones that should be getting paid."
Jeff Katz had learned the intricacies of the credit-card processing industry as a "feet on the street" salesman in
"It was obvious that realigning the revenue to the rightful parties that were responsible for answering the phone at
1 o'clock in the morning, when the (point of sale) system wasn't processing the credit cards - that seemed pretty
righteous," he said.
Mercury Payment Systems started in the Bodo Industrial Park offices of Durango Computer Classroom. Marc Katz used his
computer knowledge to build the technological infrastructure, while Jeff used his industry experience to sell Mercury
The Katz brothers hired Kaye Woodcock to be Mercury's first employee. She started on May 28, 2002, after answering an
ad in the newspaper for a part-time position. Her hours soon increased.
"We were tied to the office pretty much," Woodcock said. "We had to be. It was only the three of us, we had no
choice. If we wanted to keep it going, that's what we had to do."
Short of capital, Jeff and Marc Katz each took out
mortgages on their homes to fund Mercury. The brothers knew they had a good idea, but with no revenue, they racked up
"I actually funded the first year with credit cards," Jeff Katz said. "Initially, they were zero-interest credit
cards, but ... a couple of years later, they weren't low interest anymore.
"They were as high as they could possibly get because I had $200,000 on credit cards to start this business and
without any idea how or when I would be able to pay them off."
Mercury didn't process its first transaction until June 2002. The company gathered pace slowly.
Mercury's first customer was Just Ducky, a small Midwest retailer. Soon, others followed.
"What was really key is that we took the opposite approach, the contrarian approach, that everyone else took to the
industry," Jeff Katz said.
"We actually took great pride in saying, 'No, we're not going to lower your rates. We're going to match your rates.
But we're going to give you better technology and great tools to help your business.'"
Mercury also caught the rising tide of broadband Internet, a technology that was just becoming commonplace at the
time. It allowed merchants to process credit-card transactions faster. Customers began signing onto Mercury in
"Once we realized that was working, we popped million-dollar accounts left and right," Jeff Katz said.
At Mercury's office in Bodo Industrial Park, salesman Matt Taylor worked closest to the door. It became his job to take packages from the postal
Everyone could hear each other in the small office, so making a sale meant a round of congratulations.
"We were pretty close and had to be," Taylor said.
A former restaurant and hotel manager who graduated from Fort Lewis College, Taylor, now 34, was recruited by Jeff
Katz to the nascent company.
"The overarching feeling is that you were a part of something rare and special in start-up mode," he said.
Jeff Katz's business plan had called for 20 percent month-over-month growth. Somehow, it started to happen.
"It took a little longer for us to get going than imagined in the business plan, but once we got going, that's
exactly the growth that we actually did receive," he said. "It was uncanny."
Mercury still did not turn a profit for several years. The company had few hard assets with which to gain financing.
Loans from the Region 9 Economic Development District of Southwest Colorado and U.S. Department of Agriculture helped
the company expand.
"We did a lot of creative financing," Marc Katz said. "At some point there, we crossed into profitable territory."
As the company grew long past the start-up mode that the Katz brothers were comfortable with, they began to distance
themselves from day-to-day operations.
In 2006, Jeff Katz stepped down as CEO to start another company, ProfitStreams. The Denver-based start-up company, which operates a Durango office located above The Irish Embassy Pub at 900 Main Ave., provides various Internet-based
services to restaurants.
Marc Katz served as CEO from 2006 until May 2009, when he announced his retirement. He was succeeded by Taylor, who
spent a year as chief operating officer while being groomed for the CEO job.
Mercury's increasing size, coupled with the
shareholders' desire for greater liquidity, caused Marc Katz to go looking for a buyer.
He found one in Silver Lake, an investment company focused on technology start-ups. Silver Lake's holdings include
Ameritrade, Travelocity and Skype.
Mercury's sale of about
60 percent of the company to Silver Lake was announced in April. Neither side has agreed to disclose the purchase
The Katz brothers, who remain major shareholders and board members at Mercury, bristle at suggestions that with
majority control of the company, Silver Lake could move Mercury or lay off employees. They say Mercury will continue
hiring in Durango.
"We could have sold to another competitor, but that's not what we wanted to do," Jeff Katz said. "We wanted to make
sure that Mercury kept its identity, and that we could actually double-down."
Silver Lake gets much of its investment capital from Silicon Valley executives who are interested in growth
companies, Marc Katz said. The firm has successfully helped many companies continue growing.
"They have a terrific track record of doing that," he said. "This isn't a company that buys companies and then does
dumb things with them."
Mercury's day-to-day management falls to Taylor, who has risen from managing local restaurants East By Southwest and
The Palace to becoming one of the most important executives in Southwest Colorado.
Mercury processed payments for 300 merchants when he joined the company. It now has 45,000.
Mercury's founders - not to mention Silver Lake - expect the company to continue growing under Taylor.
"We have the potential to be one of the top-10 payment companies in the U.S.," Taylor said.
The Katz brothers candidly say that Mercury could
go public. If so, it would become the second publicly traded company based in Durango, after Rocky Mountain Chocolate
"Is it a possibility?" Jeff Katz said."Sure. Especially if you look at Silver Lake. That's kind of what they do."
Marc Katz said Silver Lake "will be a good partner for us when we get to that stage."
"Going public could be a very happy and desirable thing for the company to do if it's ready," he said. "It's not an
explicit goal. The explicit goal right now is for the company to continue growing."
Since the sale, Jeff Katz, 46, has redoubled his efforts to make ProfitStreams successful, while Marc Katz has been
getting more exercise, spending more time with his kids, and playing guitar and mandolin in bluegrass jam sessions.
They look back on Mercury's early days warmly.
"It's surreal, like the last 10 years have been surreal," Jeff Katz said. "You draw it up on paper, and then 'boom,'