Since Nautilus Hyosung's direct entry into the U.S. market — after severing ties with former distribution partner Tranax Technologies Inc. — some independent ATM operators have expressed uncertainty about how Nautilus Hyosung could impact the domestic market. Thus far, most have been pleased, says Sam Ditzion, chief executive of Boston-based Tremont Capital Group, a strategic-planning and merger and acquisition consultancy that advises ATM companies.
"Nautilus Hyosung rapidly and aggressively entered the U.S. market in early 2007 by significantly undercutting its competitors on price for comparable products," Ditzion said. "To date, ISOs and merchants have benefited from the price war, by saving a substantial amount of money on hardware costs. Some ISOs appear to be concerned that prices will ultimately increase in the longer term, although that remains to be seen."
Nautilus Hyosung and Triton say the visit to Long Beach was organized by management to put to rest concerns that the acquisition might in some way adversely affect Triton's operations in Mississippi.
"Nautilus Hyosung is very interested in growing the two businesses, independently, to three to four times the size that they are right now," said Alicia Blanda, spokeswoman for Triton. "Nautilus Hyosung wants to grow the combined businesses to a $1 billion company, and they have told us they plan to invest in people, facilities and products."
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But a number of new concerns have emerged, not just from the industry but also from the community where Triton is based. Located along the Gulf Coast, the community of Long Beach, which was physically and economically devastated by Hurricane Katrinathree years ago, relies heavily on Triton for employment and tax dollars.
Shortly after Triton's parent, New York-based Dover Corp., announced its plans to sell the business, school administrators in Long Beach voiced concern about losing hundreds of thousands of tax dollars the school system annually receives from Triton. And some industry analysts and independent sales organizations — Triton's and Nautilus Hyosung's best U.S. customers — began talking of market domination, less competitive ATM pricing and an overall consolidated market where only a few of the strong could survive.
Triton and Nautilus Hyosung say those fears are unfounded, and they both argue that the acquisition will have a positive effect on the industry.
A market of a few
The question of whether this deal creates a monopoly is one the government is likely to watch closely, Ditzion says.
"Regulators historically have been particularly focused on blocking deals that will lead to increased prices for consumers, which this deal does not appear to do," he said. "Furthermore, it's important to keep in mind that antitrust laws aren't violated solely when a company's intense competition and lower prices take business away from less efficient competitors, as regulators typically view that as the markets working effectively."
If the deal does increase prices, that could benefit the market. The so-called price wars, which over the last few years have driven pricing down for off-premises ATMs, have taken their toll, most industry experts agree. Manufacturers that cater to the ISO market have been operating at a loss for far too long.
"Price is probably going to go up, and it's not because of a lack of competition. I think it's just time," said Phil Suitt, a long-time Triton distributor. Suitt said, "The retail-market-equipment pricing has been depressed far longer than I thought it would be."
Some say the deal could actually benefit companies like Tranax, which is focusing its business on higher-end multifunctional kiosks and ATMs, not just cash dispensers — which remain Triton's specialty.
"Bottom line, I don't think anybody knows if this is good for the industry or not," said Bill Dunn, vice president of sales for Newark, Calif.-based Tranax. "I do think it's safe to assume that there will be some sort of price increase. Will it be on the ATMs or on the parts? We will just have to wait and see."
Nicole Sturgill, a research director for Boston-based financial-industry consultancy TowerGroup, says future market demand will not be so focused on price but, rather, functions, features and service. The days of $1,500 to $3,000 cash dispensers are likely over, she said.
"Going forward, the question will not be who can sell the least expensive cash dispenser. It's going to be who can provide the new features and functionality that can drive customers to the ATM, who can use the ATM as a sales opportunity, and who can make the ATM profitable," she said.
Sturgill says market consolidation could lead to the birth of a new ATM player — one that falls into the mid-level, a section left open in the Triton-Nautilus Hyosung deal. (Nautilus Hyosung says it's aiming for U.S. growth from the financial-institution side of business.)
"There has been a lot of consolidation over the last few years, but banks and retailers still have numerous vendors from which to choose," she said. "There's also no reason to say that a new vendor couldn't emerge. Competition will continue."
Carlos Siewczynski, vice president of retail self-service sales for Nautilus Hyosung America Inc., which is owned by Seoul, Korea-based Nautilus Hyosung, says the retail ATM market in the United States is already more competitive than most industry observers realize.
"Contrary to popular perception, the retail market is large, especially considering the mid-range market, such as bank-branded retail/off-premise machines sold by Diebold, NCR and Wincor Nixdorf in supermarkets and national c-store chains," Siewczynski said. "In addition to the big three, Tranax, Trantech, Greenlink, Moneytree, WRG and GRG also are all competitors in the retail market."
Sealing the deal
Tremont's Ditzion says Siewczynski's more open definition of market competition is likely the one the Department of Justice will consider when making its decision about approval of the Triton-Nautilus Hyosung union.
"The first task regulators will undertake is defining whether the relevant market is the entire ATM-manufacturing industry or just the industry of ATM manufacturers that focus on selling equipment to ISOs," Ditzion said. "Their second priority will be to evaluate whether the combined company creates a monopolistic or anti-competitive environment in that relevant market. If the Department of Justice were to file an antitrust suit — and it's important to emphasize â€˜if'— the case would either go to trial or require a negotiated settlement that addresses regulators' concerns, both of which could kill the deal or delay it until well into 2009. Otherwise, if it's not opposed, the deal will probably close within the next month."
How the union of Triton and Nautilus Hyosung will impact the retail ATM market in the United States remains to be seen. But most industry observers agree the deal will benefit both of the companies.
"Certainly the acquisition will increase Nautilus Hyosung's market share in the countries in which both Triton and Nautilus Hyosung operate — the U.S., U.K. and Australia," Sturgill said. "In these countries, Nautilus Hyosung will have a tremendous presence, particularly among the ISOs, community banks, savings and loans, and credit unions. As we have seen in the U.S., Nautilus Hyosung wants to increase their presence in banking, and Triton is an ideal complement to augment their experience in that market."
The sharing of resources will benefit both companies, says Suitt, and the reduced costs of manufacturing some parts and equipment overseas will benefit Triton's line.
"Triton was the only manufacturer that I know of besides WRG that makes anything in the U.S.," he said. "Triton waited far too long to go offshore for manufacturing."
James Phillips, Triton's director of North American sales, says economic pressures are pushing manufacturers to consider offshore options.
"It's simply due to the costs associated with manufacturing these days," he said. "Freight costs have been up because of fuel costs. Steel has gone up, and so everybody is really looking at ways to control costs — especially with certain markets like the U.S., where price dictates whether you're going to sell a machine or not."
But Phillips is quick to point out that he doesn't expect the use of offshore manufacturing to adversely impact Triton's operations in Mississippi and Tennessee. In fact, he says Triton and Nautilus Hyosung spent last week talking about expanding facilities in the two states.
"We're looking at sharing and expanding our R and D department – the manufacturing and service capabilities of Triton, specifically," he said.