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Cardtronics tips the scale with acquisition of Diebold ATMs

Cardtronics' ATM portfolio is approaching the 10,000 mark with its purchase of 1,200 retail ATMs formerly owned by Diebold. Like its earlier purchase of McLane FSP, the Diebold acquisition reinforces Cardtronics' plan to pursue large corporate accounts.

October 2, 2002

In the independent ATM world, bigger is better -- judging by the actions of some of the country's largest ISOs, which have been on buying sprees for the past year.

Houston-based Cardtronics, which a year ago bought McLane FSP's portfolio of about 1,100 ATMs, on Oct. 1 announced it is buying 1,200 ATMs from Diebold.

"These acquisitions validate our business model," said Brian Archer, Cardtronics EVP of marketing. "If you can create a large enough scale, you can become the lowest cost provider."

Financial details of the transaction were not disclosed. According to a Diebold news release, "The sale should result in a minimal net gain to Diebold's third quarter earnings."

Some of the 1,200 machines were part of the manufacturer's franchise program, which was quietly dropped earlier this year. In that program, introduced in August of 2000, retailers paid a monthly fee for a machine, which was owned by Diebold. The fee was waived if monthly transactions exceeded 150. Diebold shared surcharge revenues with retailers, based upon the transaction count.

According to Diebold spokesperson Tiffini Bloniarz, ATM ownership is not a primary focus for the company. "It's not a strategy for us going forward," she said.

However, Diebold maintains ownership of some ATMs at Wal-Mart stores in the Northeast and Southeast. Although Diebold did not disclose a number, industry sources believe it is at least 500 machines. A number of them were involved in a recent pilot in which Travelers Express money orders were sold via the ATM. (See related story Ssh, not so loud -- money order pilot a success)
   
The acquisition solidifies Cardtronics' position as the country's third largest ISO, with some 9,000 machines under contract. That's well ahead of fourth-ranked American Express, with 7,400 ATMs, and nudges Cardtronics closer to the "Es" -- eFunds (12,000) and E*Trade (11,000). According to Inc. magazine, which named Cardtronics to its list of 500 fastest-growing companies in 2001, the ISO tallied $26.2 million in sales in 2000. (See related story On the grow)

Cardtronics is second only to eFunds in terms of acquisition activity. In the past year eFunds finalized its purchase of Arden Hills, Minn.-based Access Cash and acquired three other ISOs with 4,000 ATMs between them.

Like the McLane FSP acquisition, the Diebold purchase signals Cardtronics' intent to add more corporate accounts to its portfolio. The deal includes contracts with Barnes & Noble College Bookstores, ExxonMobil, Rite Aid and Uni-Mart. (See related story Cardtronics goes after big business)

In the past year, Cardtronics has added several key executives to help pursue that business, including former McLane FSP president Mac Longoria. The ISO has gained accounts with Amerada Hess, ConocoPhillips, Sunoco and Circle K Stores, among others.

Another Cardtronics purchase is in the works. "We expect to be at 10,000 machines by the end of the year," Archer acknowledged.

While the Diebold machines are "profitable from Day One," Archer said, Cardtronics expects to wring even more future value out of them. "There's a lot of growth potential there if we can apply our cost structure to these machines."

Diebold will continue to supply first- and second-line maintenance for the ATMs, which Archer said are a mix of CashSource Plus cash dispensers and more robust 1064ix machines.

"It makes more sense to outsource as you get scale, because you can leverage your size and get much more attractive rates from your vendor partners," Archer said.

With the Diebold acquisition, Cardtronics now owns about a third of its machines. Archer expects that number to grow with the company's continued emphasis on corporate accounts, which often prefer a turnkey ATM program.

"They recognize the importance of the ATM, and they're looking for partners like ourselves who know the ATM business very well," he said. "It's not a main focus for them, but it's the only focus for us."

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