Acquisitions Anonymous - #1 for business buying, selling and operating - An ATM route, cash cow deal in Boston! - Acquisitions Anonymous 116

Episode Date: August 19, 2022

Michael Girdley (@Girdley) and Bill D’Alessandro (@BillDA) talk about an ATM Route Deal based in Boston, where we take a deep dive. We also look at a Bitcoin ATM, which is super cool and exciting. We also go along with the learning experience we had with this deal.-----Thanks to our sponsor!Pioneer Capital Advisory operates as a full-service SBA loan consulting business. The firm has established relationships with SBA Preferred Lenders in the space. Their value offering is to take entrepreneurs through the process of application at no cost to the business owner. The firm’s goal is to essentially act as a concierge to the business owner, fully outsourcing the work that they would typically incur with having to apply for an SBA loan. Essentially, the firm will be fully aligned with the entrepreneur on focusing on a successful closing.If you’re thinking of acquiring a business with an SBA Loan and want to get professional guidance through the process, contact Matthias Smith at [e-mail]—--Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.Do you enjoy our content? Rate our show!Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.-----Show Notes:(00:00) - Introduction(00:20) - Our sponsor is Pioneer Capital Advisory(01:35) - Deal financials: An ATM Route for sale(04:30) - Let’s go over a site location agreement: What do you need to know?(07:27) - What are the headwinds for this business?(09:40) - Bitcoin ATMs: Why do they make so much money?(14:51) - Back to the deal: What do we like? How does the CapEx look?(16:58) - Don’t miss out on this unexplored Twitter niche(18:26) - How does merchant processing work?(19:55) - Which company plays hide & seek with their financials to hide the fact they’re the best business ever?(21:24) - Avoid this expensive mistake if you sign anything with options.-----Links:https://atmbrokerage.com/atm-route-for-sale/boston-atm-route/-----Additional episodes you might enjoy:#108 A fireworks store and a ski rental business for sale#106 A Pet Product and Saas business for sale - Which one do we like?#Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

It is time for another acquisitions anonymous. Today, me and Bill went deep in the ATM space. So I found some deals in the ATM space, and we talked a lot around those. Spoiler alert, ATM businesses can really print money if done right. So first, a quick word for our sponsor, and then we'll dive into the episode. Hey, Michael here. Today's sponsor is Pioneer Capital Advisory. They're a new sponsor for the show and super honored that they're supporting us. So what they do is they're a full-service SBA loan consulting business, and they have relationships with different SBA lenders in the space. They cost nothing to you as a borrower, as a buyer, and instead they connect you to these banks.

And they take you through those steps of application. It costs nothing for you as the business owner or buyer. So really, they act as a concierge to the business owner, and you can really outsource a lot of the work required to arrange SBA financing to my, T-E-S-E-S-E-S-E-CAPTAL Advisory. So if you're taking a look at SBA as a potential for you and you want somebody to help you through that process and be fully aligned with you in it, we definitely recommend giving Miteas a call or an email, and you can find them at M-A-T-T-T-H-I-A-S-S-M-A-S-M-A-S-M-A-S-M-A-S-M-A-S-M-A-S-M-A-S-M-A-S-M-E-A-R-E-A-R-E-R-E-A-R-E-E-R-E-E-R-E-E-A-R-E-E-R-E-E-A-W-E-R-E-W-E-E-B-A-W-W-B-W-E-W-B-W-W-W-B-W-B-W-W-B-W-W-B-W-B-W-W-B-W-B-----------

I have never evaluated business like this. So I'm psyched to hear what everybody thinks. So let's just dive into it. I'll read it. And then I want to hear your take. You told me before recorded that you've got all sorts of things to say, but you weren't going to tell me until we were alive. I may have just one good thing to say, but I think it'll go down some rabbit holes.

And there's also, I think there's a good learning experience from this one. So that's why I like this one. But what if I told you? What's the good things that we got on most episodes, right? Yeah. What have I told you there is a brokerage that special. is just in ATMs. So buying, buying and selling ATM machines and routes for those. And it's called ATMbrokerage.com. So as I was searching for cool stuff to talk about, one of the things I wanted to talk

about was Bitcoin ATMs, because I think they're super interesting. And I found that there is ATMbrokerage.com, and I found a deal there that's for sale. So I pulled up the teaser. You want to go ahead and read this one? Yep. So this is the Boston-based ATM route for sale. So the ATM business for sale, they want $1.75 million for it. So this is a Boston-based portfolio of 201 ATM machines that they operate, and they have with approximately 70% location agreements. I don't really know what that is, but maybe Michael does. The portfolio is showing ATM gross profit of nearly $51,000 a month

of owned and loaded ATMs and a $600 a month merchant-owned portfolio. with new locations continuing to open up in 2021. All 182 owned and loaded machines are operated by seller, and all the equipment has been EMV upgraded. The machines are newer and in good condition, 70% contract coverage. I think if you do ATM routes, you probably know what this means. It says this is an ideal ATM portfolio for both local buyers and financial buyers with very strong numbers and a great regional presence with room to grow in strong markets.

There are contracts, strong margins, and a strong margins. great reputation. So the asking price is $1.75 million. It doesn't necessarily say, I think it says an average is making $55,000 a month in 2019, and it's now averaging $50,000 a month in 2020. So that would be roughly, what, $600,000 a year in profit? So we're talking less than three times here. It says a rotating vault cash is required to load machine. weekly. So I imagine that's essentially the working capital in this business is actual cash. They have 182 full service owned machines and then 19 merchant owned and loaded machines that I think they just manage. They have a team of three and they do convenience store and retail locations.

So Michael, what do you know about this? So some stuff I know. So I did Google some things. And I pulled one up actually. The site location agreement talks a bit about how this works. So here's like an ATM. I found on an ATM wholesaler and I pulled it up. And basically it's the idea of like, let's say you own an ATM machine and you go to a local convenience store and you say, I want to put the ATM machine here. And basically what it does is it, it basically sets the terms at which the landowner or the facility owner who owns the convenience store will say, okay, during these hours your ATM is going to be accessible. We're going to provide all this different stuff. And then it talks about how the economics work. So you may do a situation where there's a rev split, and that seems pretty common,

as I've looked at these, where there's a $3 surcharge fee on any ATM transaction coming out of the convenience store, and you give a dollar to the landlord, or you split it with a landlord, something like that. And then it talks about how people get paid and who's responsible for maintenance, and what if it's vandalized and all that kind of stuff. And then what the ATM owner's responsibility is to come in and deal with the stuff. Gives you exclusivity, so you want something like this where you can't have your ATM and another one right next to it, inside the same premises, that sort of thing that's pretty important. And then you'll typically have a term.

So this one that I pulled up is a five-year term. So you don't have to worry so much about a convenience store kicking you out, building up the business for the ATM and then a year they kick you out and somebody else comes in and all that kind of stuff. So yeah, so that's basically it. And it's just a protection for you. So you're going to want that versus a handshake if you're going to be owning one of these things. So 70 percent, I don't know if that's good or bad.

Maybe our listeners can tell us personally, I would like 100 percent, but hey, you know, better than nothing. You know what you can. So this is essentially this business owns the ATMs and operates them and then basically pays the whoever owns the land, the convenience store, the grocery store, whatever, pays them rent for allowing the ATM to sit there. So I imagine it's a pretty lucrative pitch, right? You go to a new location and you're like, hey, you don't have an ATM.

I'm going to drop an ATM right here. You don't have to do anything and you're going to get mailbox money. And also it helps you capture more sales because the people that show up and don't have cash, you know, they can get cash and buy things from your store. So when, when can I drop it off? I imagine is the pitch. Yeah. Right.

Well, I think the tough thing here is like most things, these kind of, you know, independent ATMs have been around for a long time. So you're probably going to be running out into a pretty saturated market. If you or I wanted to go start one of these tomorrow, I would be a million percent shocked if the first hundred places you went to, 99 of them didn't already have an ATM there, which I think is why you see that there's a brokerage that sells these routes because that's probably the only way that you're going to effectively grow at this point.

I do think you have some significant headwinds in this business. And that's what I think is so interesting and why these things are most likely trading at what looks like a pretty low multiple, right? This is listed for $1.7 million, which is less than three times net earnings, right? Assuming he's taking home $600,000 a year, that's like a pretty good price. But I think you're running into, this is a situation in which you look at a market like this and you're running into some real significant headwinds. Number one, you see banks continuing to close down all their brokerages or all their

retail locations and pushing more and more into having ATMs and those kind of full service bank branded ATMs out inside of retail locations. So you're running into that headwind. The second thing that you're running into a big headwind around is cash is dying in the United States. Like, when is the last time you pay for something with cash bill? It's hard to remember. Yeah. Well, I mean, I had my drug purchases this morning. So when I drove through, I paid for those with cash, but no, I'm just kidding. I don't. I pay for all my drugs in now, Michael. I don't know. You're a dinosaur in one more, in one another way. Pay it with cash.

Yeah. Well, I mean, it's interesting because the, well, it's interesting because with crypto, we still don't know what caught, who invented Bitcoin. And there is one theory, actually, and this is a crazy 10 foil hat theory that the NSA actually created it, because the government, by and large, doesn't want us to have cash anymore. And you see how they're doing it. Like, $100, you know, when I was a young person, a $20, bill used to be pretty useful. Now, like, you need a bunch of them just to pay for lunch. And, you know, at a certain point, they're not making $500 bills anymore. Or they're not making $1,000 bills anymore. So at a certain point, cash is becoming less

and less useful and they want to push everything to be digital. Anyway, that's a little ten-four hot stuff. But the point is, is that more and more stuff in the U.S., cash is disappearing as a mechanism for transfer and mechanism for payment. So there's a headwind there for this business. The third one, which I I think is super interesting is that part of the reason that cash is going out of favor and that the government wants to get rid of it is because it's being used for money laundering a lot. And there's been a whole rash of Bitcoin ATMs come up. And this listing doesn't have them, but I think some of the other ones that I've seen had a bunch of Bitcoin ATMs.

Are you familiar with these, Bill? I have seen them. Yes, I'm not familiar with the business model. Probably great. So basically the way it works is it's a regular ATM. and you show up and it's a cash to Bitcoin network bridge. Basically, so you show up and you say, okay, I want to put, here's my, I want to put $1,000 in, on my wallet, right?

And here's my wallet. And I want to put $1,000 on that wallet and have it show up on the Bitcoin network. And then somebody on the other end can show up with that wallet and transition that into cash or transfer that Bitcoin around, right? So who do you think that would be very useful to say, go, to a border ATM or a Boston ATM and put $5,000 onto the Bitcoin network, untraceable, unnoticed. Who do you think?

What business do you think might be very interested in that? It's a cash-heavy business. Yeah, I can imagine a lot of businesses that would love to easily turn cash into Bitcoin anonymously. Yeah. Well, you know, they sell things like cocaine and heroin and things that, you know, legal stuff, right? So that's one of the things as I started to look at these businesses was, and I found an article

on it, I'll pull up here for those of you on YouTube. Bitcoin ATMs, here's the headline. Bitcoin ATMs allow users to tap into cryptocurrencies easily and are quickly popping up all over and cyber criminals are taking note. So, you know, drug dealers will go find these crypto kiosk, crypto ATMs, and they'll use them with a bunch of, I think they call them Smurfs. It's like this idea of like you just send these people whose whole job is to like run around and deposit the maximum them out of cash and all these ATMs and they just drive around it all day. That's all they do. So I think that's the third headwind for these deals is, you know, so number one with ATMs, the banks are coming after you. Number two, cash is dying to some extent. And number three,

you have a regulatory risk that's really significant. So anyway, that's, that was the, so what? It's like, oh, okay, like you would think that with crypto and all this stuff, you would be able to start to develop a bigger business, but the problem is at some point the government's coming for you. They just are. Yeah, that's tough. So here, more than half, it said, the article said more than half of the 36,000 Bitcoin ATMs, the United States do not require photo identification to conduct transactions from $250 to over $1,000.

So you may be in a situation here where it's like, you know, a lot of the crypto, the crypto potential for growth and some of these listings have cryptocurrency kiosks. You know, you may be shut down very quickly. I think if I'll take the over on that. But in the meantime, you're probably printing money because you don't care what the price of Bitcoin is you're just like charging a spread. I have I have heard secondhand some of the numbers of what these Bitcoin ATMs are doing on a day-to-day basis down by the down by the border of Texas and Mexico.

And they are ungodly, like just ungodly numbers, hundreds of thousands of dollars a month in fees to get this. stuff because unlike cash, which is connected to the U.S. like banking network, you know, where your fees, there's some fee pressure there. These guys who are laundering money, they're totally fine to take a 10 or 15 or 20 percent or 50 percent cut on the amount of cash they put in there. So it's, it's ungodly. Now, buy your business fit, I'm probably not the right person to get involved in anything related to money laundering because I like to sleep at night and it's not as much fun. But, um, the,

So the stuff I've heard about this is just unreal. At some point, or if any of the listeners have seen kind of some of the economics of it, it would be great to hear from Yenell and we can talk about it in a future episode. I mean, that being said, that's all that being said, back to the cash ATM business. If you can buy this at the right price and you just kind of, it's like cigar butt it. Like eventually this is worthless, right? But you buy this at the right price. This could be a very nice, I mean, you still got to deal with your rabbits running around town,

reloading cash, getting robbed, skimming off the top, like all that stuff. But if you can figure out the ops, I bet this could be a very nice stream of cash flows. This will mean you know how to do this. Yeah. I would be shocked if there is, they talk about this, the rotating vault cash. I mean, you have that. But yeah, then you got to deal with the runners of the guys going out to deal with the thing and stuff like that.

It's the same problem you have in the vending machine industry. right, where you've got to be worried about theft and how many of the coins never make it back from your pickup back to the office. And how many times are the people putting their own products in your vending machines and ripping you off as the vending machine owner, all that kind of stuff that happens? But I got to imagine there's ways as you dig into a business like this, where a lot of that's been solved that you can make sure this weekly team of three that's going around filling up cash, they are not robbing you blind, which would be good. So stuff you let's talk about this particular deal.

What would what would be things you like about this deal? I think we like that there is this contract coverage. They seem to talk about that. That gives you a sense that you're going to be there for a while in most of these situations. What else is what else do we think is appealing? New machines. That sounds good. New machines.

So I think that's really key because then they kind of touch on it here that these machines have been upgraded with EMV already. There's definitely a CAPX at some point like you're. machines go bad. I expect it probably they depreciate pretty slowly, but I think eventually you got to replace these machines. So if you were looking at business like this, I really want to know how long until I have to replace each of my machines and project that out because that's not going to be in your EBITDA, right, that cap backs. And I guarantee you the seller isn't going to help you understand that. Like they're not going to sell. I're going to bake that into the cash of the multiple you're paying. So I would definitely try to understand that. But I do like that it has

some scale. It's got 182 full-service own equipment plus 19 merchant-owned. This is not like three or four ATMs. You know, this is an asset with scale. They probably got processed. They got a team of three. Like, it's happening. This is a real business. Like, you're not driving around your truck with briefcases full of cash reloading it. This is a real business. I do like a lot that this is in Boston. And, you know, I know I've pooped on Boston a lot. By the way, I was there for most of the month of July. So they're really nice people. And they are building stuff. Not that much. They need to build more houses in Boston. But anyway, I think this is a good market where unlike, say, a Phoenix or a more southwestern kind of Texas-style market, where I think

in Boston you have an interesting dynamic where a lot of the independent markets are to be found across the city because of the old style architecture that they have and the old style urban planning. You will go to very nice neighborhoods where there are these independent mom-and-pop bodegas, And that's a good thing. It's kind of this New York effect that I think, you know, you and Charlotte, me and San Antonio, you don't really see that. Like the independent gas stations are the ones kind of on the rough side of town. And you have a situation here where potentially there's some upscale, high dollar value stores that you're able to do kind of throughout the entire city, not just on the bad side of town.

Yeah. I mean, I don't know this industry, but I could see how some people would really like it. Yeah. Well, it's interesting. I am very curious to see if Twitter finds this at some point. You know how Twitter found kind of self-storage and then Twitter found, you know, found strip malls. So if you want to be ATM guy, a car dealership guy, ATM guy, strip mall guy, if you want to be ATM guy, I think there's a chance. There's a white space for you on Twitter.

I mean, what is your, as you read those threads where it's like, buy this business with no money down, what's your, what's your initial reaction to it? My initial reaction is that it's either a bullshit or a very unique situation where the seller was naive or desperate. Or one of these things that's technically true, like, no money down of mine, but I had LPs. You know, or like, you know, it's like that type of thing. I don't know. I'm not going to say it never happens, like that you couldn't occasionally, you know, and engineer a deal like that. And then at Internet scale, you can see one every day. but the odds of actually finessing that are pretty low.

I have to imagine. I'd be curious for somebody to do this. This just smells like all the dynamics of a red ocean kind of marketplace or market where some people have carved out very profitable corners of it. And like it feels like, well, the merchant processing business. Have you ever looked at the merchant processing business? For the listeners, the way it works is there are the big networks, Visa MasterCard, Amex Discover in the U.S.

And they do the behind the scenes payment processing, and they connect with the banks to provide credit cards for you. So if you have a chase card, you know, they partner with the Visa network and stuff like that. And Visa and MasterCard, they were originally produced as consortiums by the banks. And they are public companies now. They're independent. And they are perhaps some of the best businesses in the history of businesses. You know, it's up there in the Apple iPhone business type stuff.

And like the Visa business, I don't know if you've seen this, Bill. there was some analysis that I saw that the visa business is so good that they are actively manipulating their 10Ks and their P&L statements to make the business look worse than it is. When was the last time you've ever heard of a public company doing that? But like they're putting stuff into CAPEX that should be up. I mean, OPEX, like playing all these games to make their business look less profitable. Like very interesting stuff there. So anyway, back to how merchant processing works.

So that back-in network is owned by Visa MasterCard. The banks do their part, card issuance and all that kind of stuff, and run their businesses there. The airlines do their part by providing the funny money in terms of airline points, right, and that kind of stuff. And then at the retail side, there are these folks whose job is to be merchant processors to go in and find retailers, whether they are online or their companies in the physical space. and they actually are the ones that provide the machines.

They do all that kind of stuff. So there's a square and some of the other guys that do this. And then there are small mom and pops where it's like one guy and he has a portfolio of like 5,000 point of sale machines at all these different companies. And it is the reddest of red oceans where these guys are just always emailing you, scraping by and all that kind of stuff. And my point is, is this smells like that type of dynamic, right? Where somebody's making big money on the back end, making the machines.

Somebody's making big money running the ACH network in the back end where the banks are getting the cash out. And then on the front end, these guys are doing pretty good, but they're having to fight for every inch of ground as they start to build a business. Yeah, I mean, it's easy, right? Like, Michael's ATM is going to give them 20% of the revenue. I walk in. It's just an ATM.

What is my only way to differentiate is to give them 21% of the revenue, 22%, right? And it's just this incredible attrition. Red Ocean raise the bottom. I'd be really curious what the splits on market look like. Yeah, they probably, I mean, this could be a situation. It's that $50,000 a month is half of it's going back and rent. You know, you just don't know it. But this is ATM and ATM net.

That's net. So I hope that's their net. But you never know what some of these guys. I mean, it could be depending on the strength of the contract too. Like maybe the contracts are the whole ballgame. Like that even if I offer the gas station a better revenue. split, they're tied in to Michael's ATM company for another three years, and they can't replace me. I imagine that gets really key. Yeah. Well, I loved that contract that I pulled up,

this site location agreement. I love that it just had hardwired in there, a five-year term. That was great. Like, as a person who's a tenant, yeah, that's great. You're going to build up that business, then you get there. This one actually says, upon expiration of the initial term, the agreement will automatically renew for subsequent additional terms of five years each on the same term unless it's canceled by written notice with at least 90 days prior to the expiration term. So free advice for anybody who's a tenant, you want your leases to say this, right? Especially if you're a business. So the way lawyers will often rate leases is it's five years with a five-year option to renew.

And you are required to give written notice that you're renewing. You don't want that. What you want is you want your lease to say, we're renewing automatically unless I tell you I'm not. Because invariably, you will forget. And Bill, I don't know if you're familiar with this story. Do you know the Park City, Utah Ski Resort story, how Vail ended up getting it? No, I know that Vail bought it probably 10 years ago. So I'm a ski nerd.

There are, in Park City, Utah is the biggest ski resort in the United States by land area. area. Okay. And so what is interesting is the reason it got so big is there was the original Park City Resort, which is Park City Town. And then down the road, five miles down the road, was another ski resort called the Canyons. And Park City is owned by Vail, so Vail Corporation, the biggest ski operator in the world. Vail kept trying to buy, Bayle and Park City, Inc. kept trying to buy the canyons, but it was owned by a local family and they kept saying, and screw you. We're not going to sell. So Vail was really smart. Bayle went and the way these ski resorts work is they don't actually own the land. They operate on a long-term lease that has

options with the Park Service. So they all rent from the National Forest. So the way that lease was written with the Canyons was the Canyons operator had to notify the Park Service they were going to renew. Guess what they didn't do? They have they have hundreds of millions of dollars of equipment invested in it, and they forgot to renew the lease on time. Bale Corporation sent in a request to take over the lease and become the owner of that part of the thing, because their plan was to connect both resorts together and make the biggest resort in the country. And so it went into a court thing, and the owners ended up selling when it settled for a good amount of money, but they probably left $250 million on the table.

just by forgetting to send the notice. Just by forgetting to send the notice. So take away from this, if you sign something with options as a tenant, you want your options to renew automatically unless you notify. That is a huge lesson learned. Huge lesson learned. Cool. All right.

Anything more about ATMs? It's a fascinating, fascinating market. If you decide, and you're a listener, you decide to become ATM ownership guy on Twitter. Let us know. we will follow you. We will retreat your threads about how you could, too, can use Bitcoin ATMs to help drug dealers. And we will, I'm just kidding. Please don't get into that business.

But we're definitely interested in this business. It looks super interesting. It sounds like it has a lot of the same dynamics of some other kind of painful markets we're in. But at least looking at this one person, they've been doing pretty well, Bill. I mean, 600 grand. Yeah. It looks like 100% return on invested capital. Let's say they have 200 machines and they're three grand apiece.

like they're they're making a good return on equity yeah not too shabby all right uh anything anything more that's all we got another great episode of that condition's anonymous we'll see you guys next week