News

Another ISO acquisition...

...and it's not eFunds. Acquisitions continue to drive the retail ATM world. The latest, Innovus Inc.'s purchase of Momentum Cash Systems, is about more than just money, say the two parties.

January 15, 2003

The two parties involved in the latest ISO acquisition -- Innovus, Inc. and Momentum Cash Systems -- are billing it as a "marriage."

Unlike some marriages, they say this match is as much about mutual respect as it is about convenience or money.

"This is the right fit from both a philosophical and an industry perspective," said J. Michael Brown, president and chief executive of New Orleans-based Innovus, which changed its name from Automated Technology Machines last August.

"This was one of those opportunities that presented itself without anyone trying to make a strategic alliance. The alliance was already there," said Bob Cannon, president of Houston-based Momentum Cash.

It's a smaller world, after all

The last 18 months have been a period of conspicuous acquisition in the independent ATM business. Scottsdale, Ariz.-based transaction processor eFunds has been the biggest buyer, purchasing five portfolios with a total of 16,500 retail ATM contracts. During the same period, Houston-based Cardtronics bought 1,100 ATMs from McLane FSP and another 1,200 machines from manufacturer Diebold.

J. Michael Brown, left, and Bob Cannon are partners in Innovus, Inc., which acquired Cannon's Momentum Cash Systems.

Tony Hayes, director of Dove Consulting's Financial Services practice and author of several studies on ATM deployment trends, believes three market forces are driving the ISO consolidation trend.

First, Hayes said, "I think that more and more the ISO market is beginning to resemble the bank market, with a few very large players, lots and lots of small ones and a couple of regional guys."

As with many businesses, the middle is often the toughest place to be, he added.

Second, Hayes believes that some of the entrepreneurs who entered the retail market in its early days, discouraged both by its slower growth rate and increased regulatory requirements such as Triple DES, see now as a logical time to make an exit. "It's not as exciting as it once was. There's a lot more management and paperwork involved."

Third, Hayes said, more transaction processors are entering the market, a la eFunds. He thinks this "stronger alignment" between the two will continue. "It's like the airlines. Delta has its huge hub in Atlanta and needs to route as many feeder flights through there as it can. A processor needs to get as many transactions as it can through its data center. Buying ATM contracts is one way to do so."

Indeed, transaction processor Columbus Data Services (CDS) and Innovus are both owned by New Orleans real estate developer Joseph Canizaro.

All inclusive ISO

Cannon said the combination of ATM-related services now under the Innovus umbrella sets it apart from other large ISOs. In addition to the CDS connection, Innovus, Inc. is affiliated with First Bank & Trust, a vault cash provider.

"We're bringing the full offering to the market -- the ability to sell, manage, process and fill ATMs with cash," Cannon said.

Hayes expects to see more companies with multiple service offerings as consolidation continues. "I think it will be harder and harder for the large players to have a business model based on placing machines only. There's not enough in it to make it worthwhile," he said.

Innovus, which in November became the preferred ATM supplier for Avendra, a procurement company for major hotel chains such as Hyatt and Marriott, specializes in providing turnkey ATM programs, particularly in the hospitality industry. It owns all 900 of its machines.

Momentum owns about a third of the 2,500 ATMs in its portfolio and has relationships with several retail chains and numerous individual merchants.

Hayes called Momentum "one of the most innovative mid-tier ISOs," noting Momentum's attempt to establish an Internet bank in 2000/2001 and the introduction last year of its Toll-Free ATM program, which offers surcharge-free ATM access to financial institutions for a fee.

While the turnkey business continues to grow for Innovus, Brown said, with its 2002 operating income increasing 60 percent over 2001, the company in the past has had to turn down potential contracts.

"We're not always in a position to fill the needs of a client with sites that would not generate a profit in a turnkey environment. But now we can bring (Momentum) to the table," Brown said.

New opportunities 

Two new Innovus divisions will focus on lease financing and ATM service. Brown said that service is a particular strength for the two companies, which have a direct service presence in 10 major metropolitan markets such as New York and Miami. Providing service to other ISOs is a "tremendous opportunity," Brown said, because of the sporadic quality of existing providers.

Innovus will be divided into five major areas: turnkey ATM operations (Innovus), merchant services (Momentum), transaction processing (CDS), financial services (vault cash and leasing) and field service.

Cannon will join the Innovus, Inc. board of directors and manage the turnkey company known as Innovus LLC, as well as continuing to serve as president of Momentum.

All 71 employees of Momentum and Innovus will remain; new staffers will likely be added. "This is not about taking two companies and squeezing out the costs. We're trying to take one and one and make three," said Cannon, a former CPA.

Innovus is still in the buyer's market. "You can count on that going forward," Brown said.

However, he added, "We're not just out there casting a net. We're looking for partners committed to quality -- in the equipment they sell, their follow-up service and their overall reputation."