Acquisitions Anonymous - #1 for business buying, selling and operating - ATMs are a sick business. Cash is King! - Acquisitions Anonymous Episode 122

Episode Date: September 9, 2022

Want to receive this listing in your inbox? Signup for our weekly newsletter:https://landing-newsletter.acquanon.com/-----Bill D’Alessandro (@BillDA) and Mills Snell (@thegeneralmills) are joined by an anonymous ATM Operator, we talk about a deal on new ATM routes for sale, his business, and the economics of ATM routes business.We go deep diving into the risks, whether or not there’s a need for armor while driving around carrying a large sum of cash, and more on how ATM operators go about their business.-----Thanks to our sponsor!MoreNow.co: We help you hire exceptional manager and director-level talent that costs 80% less than US-based staff.Tap into one of the world’s most talented labor pools - The PhilippinesGo to morenow.co/aa and fill out the form. Or email [e-mail]. Mention this pod for 15% of your first hire.----- 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(01:16) - Our Sponsor is MoreNow(02:22) - Deal & financials: A new ATM Route for sale(04:55) - How much is the annual income produced by more than 20 machines? Can you tell us the breakdown?(05:56) - How much do you need to invest in 1 machine?(08:10) - How is this like merchant processing? Is it really a volume game?(11:14) - What are the best locations to have an ATM?(12:22) - What is the logistical jigsaw puzzle to figure out?(13:43) - Who are the “backpack boys” or “rabbits” in the industry and what do they do? (14:40) - How much is the turnover regardless of being a backpack boy or armored services?(19:01) - How much do ATM businesses make per location?(22:41) - What's the cost difference on armored services in the City suburbs vs rural areas?(24:14) - Do you get held at gunpoint at times? What are the key risks of this industry? (27:35) - How do ATM machines work? What should you understand about these? (30:16) - Why is syndication a nightmare?(34:15) - Let’s talk about operations margins and costs!(40:08) - What should you ask the deal owner around operations? ----- Additional episodes you might enjoy:#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]

For my own personal experience, I was a backpack guy. And I like to say that it was really cool when I was 25 and had two machines. And I was running around with $16,000. And the scariest day of my life was a couple of years ago when I was driving around with $400,000. And my then girlfriend, we were married at that point. My wife looked at me and said, you're not doing this anymore. more. And I said, you are 1,000% correct. So I've switched over to third party armored services. Now, the challenge there is it's very expensive, at least for what it is. And the key, to your point,

is you don't want to be going all the time, whether it's you in a backpack or whether it's your armored service, because then it's just going to eat up all of your profit margins. So, you know, looking at this guy's deal here, the first question I would ask is, how much money are you going through every month and how quickly is that turning over? Hey, everyone. Welcome back to another episode of Acquisitions Anonymous. I am one of your co-hosts, Bill Dallisandro. And this week, we have an absolute banger for y'all in the words of Michael Gerley. We, in the spirit of Acquisitions Anonymous, after we did our ATM episode a couple weeks ago, we had an anonymous ATM operator reach out to us and essentially say, you guys know

know Jack about this industry, I would love to come on and educate you guys about the business of ATM routes. So that's what we have for you this week. We have about 40-ish minutes of deep dive with anonymous ATM operator. We review a deal. We talk about his business. We talk about the economics of the ATM route business, what it means to walk around town with $800,000 in the trunk of your car, the risks involved with that. When you want to use armored, when you don't, the economics of the ATM business is a really awesome episode. I think you will like it. And if you do or if you like our podcast generally,

please hop on Apple Podcasts or wherever your podcasts are sold and listen to and leave us a five-star review. It really helps other people discover us and for us to get more downloads and for us to sell more ads so we can maybe break even on this podcast and keep bringing you episodes like this week's with anonymous ATM operator. Hey, today's sponsor is More Now. And you can find them at more now.com. And they are friends of the podcast, Greg and his partners there.

They specialize in helping businesses of all size build overseas teams made of folks that aren't just your standard VAs but are above and beyond in terms of experience, seniority, and all that kind of stuff. So look at my notes here. They do all kinds of stuff, accountants, supply chain managers, operations. So everything from specialized individual contributors up to direct. and above, all located offshore, and really a good resource for small businesses and businesses of all size, trying to build out their teams, especially in today's super tight labor market.

They'll go and help you find talent across the globe. Definitely encourage you to check out more now.co. Greg and his friends have been great partners to podcasts and are really part of helping us grow this. So go check them out. MoreNow.com. Tell them that acquisitions and I'm not. sent you. Thanks. Anonymous ATM operator.

Welcome to Acquisitions Anonymous. We're glad to have you. Oh, thanks for having me, guys. It was crazy to see that you did an ATM portfolio deal and just thought I could add a little color to that one and tell you guys a little bit more about the industry. It's, it's always fun to, for once, actually maybe know a little bit more than you guys about a deal. You're breaking down.

So I appreciate you having me. I think a lot more than us. It was what really excites us here at Acquisitions Anonymous is we'll do an episode on something and we'll shoot our mouths off. And then someone who owns businesses in the space will shoot us an email and go, actually you guys are total idiots. Here's how it really works in our industry. And then we typically respond with awesome.

You come on the show and talk about it. And that's what happened here. So we're happy to have anonymous ATM operator with us. And we're also happy to have Mills Snell with us, our co-host, who has dug into this space over the last couple years as well. This is really fun for me. I wasn't part of the last episode, but to me, ATMs are one of those things that are elusive,

and I would love to own at one point. But what I was telling these guys is, I feel like I know enough to really like it, but I also know enough to be scared to death of it. So we've got two really good deals today, and we'll kind of start with the first. We've got a teaser that we can pull up. But I'm going to read through this teaser.

It's from biz broker and it says ATM provider route 92 locations with contracts. They can be separated into seven route groups. It's in the LA area. The price is just over $1.1 million on $370,000 of annual net income. Since it's a highly profitable ATM route and service business, the business can be run easily by one owner operator or by others. The new owner can set your own schedule to collect and replenish each machine. It's a simple and stable business.

Full training will be provided. Total of 92 locations, including the ATM machines, installed and working on each location, plus a good term of the agreement with each individual location, meaning that these things aren't about to expire. The kind of deals with the contracts or the deals with the convenient stores or wherever they are aren't about to expire. Total income from all these 92 locations is about $370,000 net income after the payout to the locations expense because you're splitting the fees with them. And then they have them in seven groups.

There's basically is in ascending order all the way up to 20 machines that produce $100,000 in income yearly. And they, you can look at this on YouTube, but they break down how much they're making in income yearly, how many machines it is, and then what area they're in. And then they show some photos of, you know, stock images of machines and maybe one that's their actual. And then some contact information for the broker. We have a little bit more information on these. And I think, right, ATM operator, we're kind of, we have some more info on this, the kind of highest level tranche of this, so to speak, the $100,000 a year in income on those 20 machines. Is that right? So within that spreadsheet that we were able to take a look at it, actually,

does break down every terminal within the portfolio, just different tabs in the spreadsheet. And then it is so it's kind of like a master. And then what's the $20,000 one, $30, $40, $40, $50, all the way up to $100? And then if you wanted to get the whole thing, you know, what that might look like. I just have expensive taste and my eyes completely cut in towards the most expensive one first. So, yeah, so let's just talk about this. So very, very basic premise of this business is you spend what ATM operator, $2,500 on a machine, maybe $3,000 at most is your sunk cost.

And then there's some install fees. And then these machines can make anywhere from, depending on the location and all the different underlying variables, maybe anywhere from $100, $150 up to $500 or more per month net. am I I I'm grossly oversimplifying this but that that is a wonderful gross oversimplification yeah so the equipment depending on how how fancy um you guys want to get you can get something that's $2,500 you can get something that's $8,000 typically you don't need an $8,000 machine unless you're putting it in the middle of a casino which is kind of the uh you know one of the three best locations you can possibly get when it comes to doing this stuff. And then, you know,

you set your fee. You make, let's just say, $3 in transactions. You walk in, you get your money out. You pay the location a dollar. You keep the $2 plus a little bit more, which we can get into if you like. And then you've got some operating expenses of insurance, putting a cell phone on the ATM to allow it to call out to the processing network. And, um, you know, I think that's it. And then usually the location pays for power because, you know, you're not going to haggle with someone over the fact that like, oh, well, this thing was four watts this month and six watts that month or whatever.

So, and they make enough off of you. And then to your other point about how much they can make per month, you know, yes, some machines do one to $200. And then there are other machines out there depending on what's going on that do $3,000 dollars per month. But basically, you know, those are few and far between and hard to find. So this is similar to how last week we were talking about the merchant processing stuff, that this is a volume game unless you only go big game hunting. So help me understand because you mentioned $8,000 ATM in a casino.

I may or may not have used one of those recently. But I was, I mean, when you said that, I was like, way to that. a minute. Like, does MGM not own those ATMs? Like, why would they give up all the, and they think they charge me like $9, right, to use their ATM in some of these premium locations. So can you help us understand a little bit, like, what type of locations have third-party ATMs? What type of locations own their own ATMs? And then, like, inside of that, how do they decide what amount of fees to charge? Like, obviously, I'm not paying $9 and a 7-11 to get a $20 out. I would hope not. So, you know, to answer the MGM question, you know, the traditional business school theory is you want to be asset light and subcontract out as much as you can.

So someone like myself or someone larger than me would go to an MGM and say, you know, we want to do this for you. And MGM would say, great, of that $9, we're going to keep $8.50 or we're going to keep the full $9 and your own. only going to make interchange. So, you know, everyone wants to have someone else do this for them, as far as all that's concerned. And then you just negotiate the feat. You sit there and say to yourself, okay, well, you know, at the MGM, they, I'm only going to make a dollar per transaction, but I know because it's a casino that I'm going to do a thousand transactions a day or, you know, across, you know, the seven ATMs they've got lined up there. So that's kind of how that works.

And then as far as like, why would you need an $8,000 machine? That comes down to the bells and whistles and then how much money a machine can hold. So the $2,500 machine can hold, you know, if we're assuming that 20s are the baseline currency, can hold about $18,000. And then the bigger the machine you get, the more money you can put there. And then you can do multiple cassettes where you can have a dispensable. hundreds and fives. And I even heard a story once about a strip club that wanted to dispense only singles. And they had to put two or three machines in there just because they were burning

through the dispenser so quickly. But, you know, even then they were putting $30,000 in, which is just a bananas amount. If you've actually carried that much money around, it's very strange. So that's why you would need a machine board bells and whistles. It has a bigger capacity and then just might do other things like allow you to deposit money or yeah, that's that. ATSM operator, you mentioned three, like the three best locations, one of them being casinos, strip clubs or another, right?

Yes. And what's the third? Cash only food stands are good. three, yeah, that's, that's probably even better than strip clubs or casinos because at that point, you're not fighting with a corporation or with, actually, you know, I guess a lot of strip clubs now are owned by larger corporations. You're not, you're not fighting for every last dollar with this conglomerate. You're effectively becoming a partner with a place and providing them a great service and helping them make money in multiple ways. I have a friend who owns about 20 ATMs, and he used to own a bunch of strip clubs, and they were in his own strip clubs.

And then he sold the strip clubs, but he still owns the ATMs. And it was a very, very lucrative deal. I think he was doing like $20 surcharge. So if you go to the machine to get $20 out, it charges you $20, you know, that kind of thing. But let's talk about a couple logistical elements of this business that I think are. where the rubber meets the road truly, vaulting the machines is the term, right, for putting the cash in them. This to me is the logistical jigsaw puzzle to figure out because like this listing says you could do this on your own. And part of the like allure and mystery of this business

is nobody really wants to broadcast like, hey, here's what I do. Obviously you're anonymous. And it's because at some point in the day, if you're vaulting the machine, machines yourself, you're riding around with a bunch of cash in your car. And a machine, right, could hold $10,000 easily. Otherwise, you're there, like, way too frequently trying to re-vault it. So you can either vault the machines yourself or you pay somebody to do it, like your employee, but then you're paying somebody even $20 or $30 an hour, right, at most. And they're riding around with tens of thousands of dollars in cash.

Or you can go with third party vaulting. Can we, can you tell us, I guess, kind of, in a nutshell, what's going on industry-wide? I mean, what's going on in this case? This guy's doing it himself, I'm guessing, right? And talk about the pros and the cons here. This is a big, big hurdle. Yeah, absolutely.

So it runs the full gauntlet of what I like to call backpack boys to armored car service. You know, you call them rabbits, I believe, on the podcast recently. So, you know, for my own personal experience, I was a backpack guy. And I like to say that it was really cool when I was 25 and had two machines and I was running around with $16,000. And the scariest day of my life was a couple years ago when I was driving around with $400,000. And my then girlfriend, we were married at that point, my wife looked at me and said, you're not doing this anymore. And I said, you are a thousand percent correct.

So, you know, I've switched over to third party armored services. Now, the challenge there is it's very expensive, at least for what it is. And the key, to your point is you don't want to be going all the time, whether it's you in a backpack or whether it's your armored service because then it's just going to eat up all of your profit margins. So, you know, looking at this guy's deal here, the first question I would ask is, how much money are you going through every month and how quickly is that turning over? Really interesting fact about the vault cash. And I talked to a federal bank examiner about this, a friend of mine's dad who I grew up with. I said, you know, do I classify the vault cash as

inventory or as an asset? He said, it's both. And I said, really? Tell me about that. He said, well, when it's in the machine, it's inventory. And when it's in your bank account, it's an asset, a different way of looking at, you know, what money actually is. ATM operator, just really quick, to me, this is a fascinating conundrum of this business is that there is working capital in the sense that we typically talk about it is cash that's required for your business to operate. The entire business is the cash that's required to operate almost. And that money, the working capital needs, they are significant. They're high. And that money stays in circulation between your bank account and the machine at any given time. It really can never achieve escape velocity. What's interesting,

right, is that somebody swipes their card. They take $20 out of the machine. They pay you $3. The very same night, right, you're getting $20 deposited into your bank account. And again, I'm oversimplifying, right? Yeah, well, I'm getting $23 deposited in my bank account. Yes, yes. I'm getting everything immediately because I don't want anyone holding my money any longer than they have to. But, yeah, you know, some guys do take the $3 in aggregate monthly just for bookkeeping purposes.

But a lot of guys, what they do is they'll then take that $23 just for argument's sake and then roll it into the next day's distribution. So over the course of time, if you know, like this guy, he's, making was about 30, you know, according to this 37-ish, let's, you know, whatever it is, $30,000 a month plus or minus, you know, that's money that you can then go and put to work to lessen your burden. You know, and maybe you say, okay, I just cleared 30 this month, you know, I gross 30, I netted 22. I'm going to take 11 and put it back into circulation to, you know, then get myself a little bit more breathing room and, and less time running around with all this stuff.

So really, it's you are, the ATMs are dispensing cash, and then it is going back into your bank account, where you're taking withdraws and putting it back into the ATM. So that's really the cycle, right? That is the cycle. However much cash goes out that day, that much, or hopefully overnight, right, however much cash is out that day, hopefully overnight, that much plus the VIG, gets deposited into your account, which you then have to pay out the locations, probably not right away, right, once a month. So you do have some float things on what you know them. Yeah, if you want to get super technical, depending on when the transaction takes place,

if I see a transaction Monday at 10 a.m., I get that money on Tuesday. If I see a transaction Monday at 4 p.m., because it's after the Fed cutoff time, then I see that money on Wednesday. But either which way, there's no more than a 48-hour lag on money coming back to you. Okay, very interesting. So bills used to getting paid right away in e-com, right? In the construction business, I'm used to getting paid in like 45 to 90 days. So you guys are all doing better. So I don't know if this is, and we can clip this part, if this is proprietary.

But you provided us some sample data on some kind of how much an ATM business makes by location. And I kind of averaged it out as a percent of money dispensed. So my rough math here is it's on average about 4% of the money dispensed is the fee, right? So you dispense $10,000, you collect $400 of fees. And then I assume sort of the whole business, what makes a good one or a great one, is how much of that 4%ish you keep and how much you split with the locations. Is that accurate? I'm not going to be able to give any true commentary to your math because I'm not good

it math surprisingly, but the name of the game is, as with anything, so this is an oversimplication, you know, can I keep my cost low? And the cost then, and this is where insurance becomes a part of it. I know that's one of the things you guys wanted to chat about. So can I keep my cost low enough where it makes sense to put, how much should I put into a location to make it make sense, right? Like, if there's a machine that goes through $10,000 a month, I can put $10,000 in there and just forget about it. Or, you know, if I'm feeling particularly ambitious, I can only put $2,000 a month in every time and just go, you know, four or five times a month. You know, that'll lower my insurance costs, but it'll increase my, quote, operating costs. So real quick,

at least the way it's set up through my brokerage is the insurance cost is plus or minus. about 2% of the total value of the largest amount you ever have in a machine at any given time. And then there's also a 2% cost to ensure the machine itself. So, you know, just quick, quick simple math. I buy a $3,000 machine. I say I'm going to put no, at the most of it ever being here is $10,000. So I've got $13,000 in exposure. you know, 2% of that's, what, $260?

No, this is where it gets ugly with me doing math in my head. But, yeah, that's right. Yeah, so my insurance cost for the year is $260. So, you know, 20 some odd bucks a month in insurance cost. And then, you know, so that's the insurance side of it. And then armored operators vary in price. depending on different, excuse me, distance from their main depot and a few other factors, but that's the main one. And then whatever that cost is, you say, okay, is it better to

send, you know, only insure up to $10,000 and send armored twice, or is it better to insure up to $2,000 and send armored four times? So that's usually the main calculation for people who go armored. There are a lot of people in the industry. especially older operators who are, you know, this is just their job. So they don't care about how often they have to go to bodega or gas station or wherever. You know, that's just what they do on Tuesdays or whenever it is they choose to go. And some people are crazy enough not to even have insurance saying, well, you know, if I get hit once or twice, that's okay. and that I never understood, but that's between them and their God, I guess.

So how much does it cost me roughly to send armored once? Depends on where, but you're looking at somewhere between $75 to $150 if it's city suburbs. And then if you're rural, I've been quoted it, but I never wound up doing the deal because it didn't make sense. But I've seen rural rural at like 250 or 300. Okay, wow. And that includes you don't have to worry about also getting the cash out of the bank either because they, I assume, have a vaults of it, right? So for your 100 to 150 bucks, you eliminate all the employees or the personal risk. You also eliminate all the trips to the bank and you eliminate all the trips to all the locations.

Sure, exactly. And there are some people though out there who say, well, my time to do this is worth, you know, if I have 50 stops, I can't pay, you know, 50 times even if it's 100 bucks, I can't pay that. I might as well just keep it and go do it myself with my backpack. And again, good, good. I mean, I know, I know a guy personally who once drove around with $800,000. And I said, you're going to get killed. And he's like, nah, it's fine. And I said, okay, that's just, you know, I thought you were going to then say that he got killed. No, no. I mean, I don't even like that guy anymore. And he, I would not wish that upon him. So anyways.

So, I mean, is this like a common thing in ATM circles that people are like, yeah, I got held up at gunpoint one time. And after that, I switched to armored. Like,

is that how it typically goes? That I don't know. I, you know, it's weird. The industry is a very strange industry. like people are friendly to an extent, but everyone's always got an eye on one another because, as you guys pointed out, you know, a gas station will get rid of it for 25 cents more. And there's even a story from, you know, one of my, probably my, one of my best friends in the industry, you know, he's been doing this substantially longer than I have and he's kind of taking me under his wing a little bit. And he was saying that he was losing locations because guys were walking in and saying, I'll give you whatever the cost it is to terminate your contract plus 10% plus a signing bonus.

And I'll give you, if you're getting a dollar, I'll give you $1.25 just because they're trying to grow their volume number. And he lost several locations just from scummy operators coming in and offering these massive deals. So to an extent, you know, one of the key parts of this industry is the relationships that you develop with your customer base. As with anything, I'm not saying that that's some magical new thing for the ATM industry. But, you know, even more so than trying to sell, you know, construction services or or lotions and potions. It's like, you really got to have, I mean, my oldest two account, my first account and my first account and my old. that guy went out of business, unfortunately, because it was a great hamburger stand. But my oldest two accounts I'm now on a handshake with and have been for almost 12 years now. And I said,

do you want to contract this up? They're not really. I said, you sure? And I said, listen, we've known you since you were 10. And we're just going to do this. And you're just going to pay us and you're going to make sure the machine works. And that's it. And there is a service element here. right? So if you're the convenience store owner and you have a guy who doesn't care for and feed his machines, they're like, look, my customers are trying to get cash out and they can't get it and therefore they're not paying me. And so you've got to, you know, you have multiple parties to keep happy like any business. Absolutely. And at the end of the day, you know, if the machine's down, I'm not making money. So it's exclusively in my best interest to get myself or, you know, a tech out to fix these things as soon as possible. It strikes me that, you know, as you said, this is just a price competition game, right? Some new guy walks in and says, I'll give you an extra 10 cents of transaction. You know, if you don't have a relationship there, that guy's going to switch.

But it also, if that is true, the guy that is willing to be the backpack boy, as you mentioned, he's got a lower cost structure than the guy who uses armored. So he can almost always underpriced you, right? Because he's not paying $100 a visit because he's doing it. And also he's got the better advantage on you because the armored guys aren't exactly building relationships with the bodega either. So he's cheaper than you and he's there a couple times a month shaking hands. So is this a type of thing that like it almost has dis-economies of scale? Because as you scale, the mom and pop guys just it's death by they eat you in a thousand bites.

Is that how it works? I think it gets to the point where you can only do so much on your own. even if you do commit to making this your life and you do need to start bringing on, you know, rabbits and people to help you. And that's where it gets tricky of, do I trust a good friend from high school with $70,000 to get to these five places on time when it needs to be done? And do I trust that he also is going to be safe and not get robbed? And there are people who will tell you, yes, that's the only way to do this. And there are people who will tell you, especially in the world that we live in, the only way to do this is on Armored.

And you're crazy if you walk out of a bank with more than $500. So I may have to think about that and write you guys an email follow up about dis-economies at scale. That's an interesting take. Well, I mean, let me ask you this way. Are there national, like big national ATM rings or is this totally fragmented and it's all little guys with rabbits? Oh, yeah. No, no, there's definitely large, I don't want to say roll-ups. You know, when the industry was a little bit more blue ocean, people went out and started saying, you know, hey Bill, hey Mills.

Any ATM, if you want to get this business, go out, place locations, and I'll do all the back-end work and basically be like an ISO, which is an independent sales organization for the listeners if they don't know the term. And, you know, then there was some consolidation. inevitably, as you guys touched on at the very beginning, the biggest barrier to entry here is having enough cash to service these machines to make it make sense. So even in my own journey within this industry, of course, I wanted to go massive. But once I started looking at the economics of it, it's like, okay, well, you know, I've got this much money. That means I can do about this much before it becomes a problem. And unless I find an investor partner or a bank to lend me the money, you know, I'm kind of limited. I can do.

And the email to you guys, you know, syndication is a nightmare. So I hope no one's trying to be the ATM Twitter guy or girl. Just because, you know, let's look at, you know, if we stay with this deal, for example, you know, just for argument's sake, this whole deal, they're going through a million dollars a month. So even if you say, okay, I'm going to, you know, chop it up. You buy it for a million dollars, right? but then it requires $3 million to operate.

Potentially, right, exactly. If you want to only go, I mean, if you want to say, I'm going to super load every machine I have to their once a least number. That means you need to have at least, you know, just for argument's sake, you know, between bank holidays and whatnot, you know, you need to have at least 1.1, 1.2 to cover 30 days worth of operating if you only want to go once. Now, if you're willing to say, I'm willing to go four times or do this myself. self or whatever. Okay, then you can get away with 300,000. What does that even mean? You're still

driving around $300,000 at some point, you know, trying not to get staffed. Bill, isn't that crazy? Like, you think you're turning over, right? I mean, because you're in an inventory-driven business, but it's like you think about turns on that. And the fact that, you know, it is, you know, your working capital needs are, you know, it's not number of months. It's really like, number of days. It's a 30-day cycle. The deal that I looked at many years ago, the machines were much more spread out. It was like 180 units. They did lower volume. And it was like $400,000 net annually, but it required $2 million of cash in any given time. And it was just like, how do you make this deal work? You've got to come up with so much cash to do the deal. Yeah. Well, so is it a good ATM operator?

is it a good rule of thumb, like about $10,000 in inventory cash per location? This one that we're talking about here has 92. Let's round it up to 100 locations. So that's a million bucks. So they're selling this business. It makes $370,000 a year. Assuming you didn't have to buy this business, you've got a million bucks in circulation. Your return on that is 37% a year.

That's pretty great. Hell yeah. Right? That's pretty good. This is not long. he's like, this is what's up. Now, I don't want to get shot for 37%. You know, I think my rate for getting shot at is a little higher than that.

But I think I'd be going armored. But so you look at this business for sale for $1.1 million on 370 of SDE, basically. So that is a two point as a three X multiple. Almost like that. That's how they pick it. I assume, though, the working capital adjustment is not going to be nothing, right? I assume the guy's not going to give you a million dollars of cash with the business. So you're probably going to have to come up with, again, we're using round numbers here,

$2.1 million. So now my question is, right, because it's $1.1 million to give to the guy, but he's going to take your $1.1 million. That's his payment for the business. But he's also going to then effectively either empty all of his machines and you've got to refill him or realistically, you just pay him for the cash that's in the machine. So that means you're out $2.5. $1 million to buy this business.

But I imagine, like, can you finance that? Because now that's a huge, you know, that's a huge, there's a big multiple. Like, I don't think you can't even SBA finance that, right? Because now you're paying like a six or seven X multiple. And I don't know that a bank's going to want to give you a loan just so you can convert that loan to cash and put it in ATMs all over the world, right? I feel like a bank would be pretty nervous about, maybe I'm wrong. Maybe they finance these all the time.

how do deals get done? You're definitely not going to the SBA. You know, I've had discussions with some banks over time. They are intrigued by the premise of the cash flow. They get a little nervous around the know-your-customer stuff and anti-money laundering. You know, some bank, you know, the other tricky part, too, with going to a bank is that you might, you know, they might just say, yeah, we'll give you the million dollars in operating capital, but congratulations, we're going to charge you 4%

for the trouble to do it. And then it gets the expensive as well. I've never found a good answer to this question, which is why I'm probably not as big as I would like to be. You know, in the past, I have taken on partners for a period of time. You know, they then wind up sharing in the surcharge fee with you. You say, okay, I'm making a, I'm a, I'm a three bucks here. I'm paying a location a $1.50. I'll give you, you know, 75 cents. I'll keep 75 cents or, you know, we'll split what's left after all the expenses are paid. You know, it's, there's a little hustle to it. But it's interesting because private money then says, well, hey, I'm putting up a million dollars and I'm only getting a 7% return on my money. And if I

went with hedge fund X or meet Y, like I could be making this much more. And my argument's always, yeah, but there's literally, the only risk to your investment here is somebody taking off with your money, which, you know, that's not going to happen. And you're insured against that, right? Right. Exactly. Exactly. So, you know, deals get done typically where someone like myself is either, you know, talks about it and someone says, ooh, I'd be interested in parking some money over there. Or, you know, just through time, you grow well enough.

or you find the, you know, the one bank in the middle of nowhere who's just looking to grow their, you know, their loan portfolio and goes, hmm, this is interesting. I get it. My brother's actually in this business. We'd love to give you the money. But I haven't found that bank quite yet. So the other, this just jumps now my entrepreneur brains going, right? Like, this is just like tailor made for some kind of specialty financing company.

You know, there are specialty financing companies that do hard money. money lending for home rentos when banks aren't agile enough or don't want the risk profile or whatever, I could see that like if you're trying to scale an ATM network, especially if you're trying to scale by acquisition, actually, your biggest problem is the working capital. And I could see a specialty finance company here that is, you know, first lien debt. It's secured by all the machines and the contracts. And if you default, they just take the machines with the cash. in them, right? So it's like almost impossible to lose money. There's something out there like that, but they're so expensive that, you know, let's just,

if we use this deal, for example, you know, that 370 that you're seeing on a yearly basis might quickly turn into like indie. Really? So they're charging 30% a year, roughly? It's probably closer to 15, maybe 20, but it's, it is where it gets really messy and disgusting and it's why most operators don't want to deal with it is you could go to I've explored it and they go to you and they say okay you know the first hundred transactions we're going to charge you know we're going to charge you a dollar and then if the machine clears 101 transactions up to 300 we're going to charge you 90 cents and it scales down with the more volume you do but you know you guys thought if you take a quick perusal of this spreadsheet you

know, a good chunk of these locations aren't really all that busy. So you just go, okay, what am I doing and what am I paying for here? And you really, at that point, you're just kind of like a referral partner who's happy to make a couple of points here and a couple of points there. Then you really got to get to the volume to make it make sense. So in an acquisition situation, you really, you guys have touched on it correctly, you really have to have, you know, if it goes through a million a month, you better have at least $300,000 to make the deal work for you as your

operating capital. You don't need the full million. You really don't. But you certainly, and then that $370, you know, that 300, you know, the $300 gross. And if you've got the million, maybe it's a 22 net, maybe it goes down to 17 net. I'm just making up

numbers here. But at least the money's still there to the point where you can make the deal make sense, but to like literally outsource everything and just smile, the payback and return parameters get so out of whack that you can't get close to it to make it make sense. Operator, let me ask you this. When you look at this portfolio and the tranches that they're in, again, I'm guilty

of gravitating towards like, hey, 20 ATMs making the most money seems to make the most sense if you're going to, you know, if you're going to, you know, be a backpack runner with this. But when you look at this, you have a set of eyes and experience that we don't have. Is there, is there a diamond in the rough? Do you look at this and say, hey, here's the underperforming machines. I'm going to take these, you know, and, you know, almost flip them, you know, in a sense or just bring them up. There's like an arbitrage play.

How do you think, do you think this is all or nothing? You should do all these? How do you think about it? No, I'll tell you, it's great that you ask that, Mills. I'll tell you exactly what I did with this deal. I did not buy this portfolio, full stop there. But, and I don't think it's on the market anymore. I went to look to see if it was on there just kind of in prep for our call, so I didn't say anything too out of school. And I think it either pulled it or it's no longer, or it got sold. But the funny thing was there was like three or four brokers representing this deal, so I never knew who to talk to. Red flag. Red flag out of the gate. Yeah. Yeah, I mean, listen, you start on biz by sell. And as I understand it, the owner's a little older. So he was just trying to get as many people, you know,

marketing this thing for him as possible. So what I did was I did some sorting in the spreadsheet and found the, I think it was like the six best locations. To our point earlier, it's, you know, my approach has always been, I only want double, triple, home run, Grand Slam locations. I'm not interested in managing, you know, hundreds of locations that are doing. $100. I want the home runs, right? So I sorted through the data. I was like, okay,

these six locations are fantastic. And I emailed at the broker. I said, would you be willing to sell me just these six? And he said, yeah, but we still want three times earnings. And so I said, hmm, okay. And then, you know, kind of got a little bit deeper into looking like, okay, these aren't in my particular region. So what are my additional costs and how do I want to set it up out there and can I even send it out up out there? Now, just a quick aside about me, we do operate nationwide. So that wasn't the issue. It was just figuring out kind of it was going to be a new market for us.

When all of a sudden, I decided to take a pass just because, you know, it wasn't the money per se. It was just thinking that that particular moment at time seemed to be too heavy a lift. Now, if those eight locations or six locations were still available in January of next year, I would certainly make an offer on them. I did think three times earnings was a little steep, but the asterisk in this deal in a good way was that the contracts, which you guys touched on back in the day, two weeks ago, a week ago, that they did have these great contracts in place. And that is the other key to this, is how long am I contracted for? Because my approach, I take two different approaches to evaluate what I'm willing to pay for a portfolio. It's either 18 months, with an earn out or, you know, kind of the industry standard, if you will, is 45 to 55 percent of the remaining anticipated revenue based on the amount of contract left. So Mills, if there's a

three-year contract that I had in place on a location, you come to me and say, operator, I want to buy this location from you. I'm going to say, okay, you're going to say, how much time's left on this three-year contract? I'm going to say 18 months. So a reasonable number there would for you to be to say to me, okay, I'm going to pay you nine months or 12 months of revenue on this location so that by the time it's all said and done, I've gotten paid back in a reasonable amount of time and that I will be able to make some money based on what is currently in place now. And then that way, at the end of the contract, if for some strange reason doesn't get renewed, you know, whoever comes in gives them a better deal or they just

start or you decide that the location is not making enough money for you you've at least had the opportunity to break even and make a decent amount of money based upon what the machine should be doing before you know the deal sunsets potentially forever yeah yeah operator one more question for you on this that I ran into as I was digging into this is the availability of cash supply. So when I first started looking at it, everybody was like, this is the dumbest thing, who uses cash? And a lot of people in my circles don't use cash. We don't go to the ATM, but there's some amazing kind of macro level data that says, you know, cash usage is not going anywhere for the majority of the population. But the availability of cash on hand at banks is very

limited. And so as you get larger, it seems like you start to, and maybe if you use a third-party revolting, this isn't the case, but you start to run into an issue where you've got to go to Federal Reserve branches and start requesting cash like shipments. And so that to me is this interesting, you know, you think about economies versus dis-economies of scale and where the natural kind of ceilings occur in step function change of business. To me, that was one that I didn't know enough and I wasn't going to go far enough to run into it, but cash supply is a very interesting thing and how regulated it is. I'm just curious if you can say a little bit about that. Yeah, it's interesting.

Back when I was running around with the backpack and a duffel bag, I would have to tell the bank a week ahead, hey, this is what I need for next week. And they would say, great, no problem. And they would place an order with the Fed. And then it would get delivered to them whenever it did. And then I would come pick it up, you know, whenever. I decided to come pick it up. And you can't walk into most banks these days and say, I'd like $100,000 in 20s.

They'd say, well, that's nice. We've got $2,000, best of luck to you. At one point, as I was picking up my money, the bank wasn't even breaking open the bag from the Fed. So I was getting a bag that had, you know, Federal Reserve, all the markings on it. And they'd come in. I'd give my ID and debit card. And they go, great, here you go.

And hand it across the counter to me. And I would be on my way. The $800,000 guy, he used to get it through the drive-through with his bank, which I thought was really funny. But then what gets crazy is then the bank starts charging you fees on top of that because, you know, now they've got an increased insurance risk and they've got an increased ordering cash risk. Or not even risk, just they get charged when the money comes in. And so you do almost wind up having to be, you know, you kind of get forced into using a third-party armored service and hoping that the price is about the same or less just for logistical purposes to be able to get, you know, if we needed $300,000 on a Monday for this particular deal,

there's only really one way that's going to work for you to be able to get your hands on that kind of money. I think that's a fascinating dilemma for this business, especially when the majority of the operators are kind of more old school mom and pop. And if you can figure out a way to maintain the relational and relationship traction, like Bill said, with these folks, you know, and maybe you're still going by, right? You're just not carrying cash and you're maintaining those relationships. Like any industry, there's probably those players where, you know, I don't know what Walmart does. they may own and operate their own ATMs, but there's certain big multi-location folks who are only going to deal with people who can service every single one of their locations. They make one

phone call and there's an ATM at every, at every, you know, spot. They're not going to do business with guys like you or me who say, I can handle three of your stores. You know, they just want one contract to cover them all. And so there's, there's, I think, like anything, there's the mom and pops, there's the guys who kind of play in the middle, and then there's the folks who can do it at national scale. And there's probably really, really great businesses at every segment of that, you know, of that food chain. Oh, for sure. And it's fascinating that I've seen the deal come across my desk a couple times. There's a national company who, like, something never sat right with me about this. So I'm going to stop there because I'm not, I'm not in position to

accuse anybody of anything. But there's a national company. that is effectively so hard up for, has either done the math or is just in such need for liquidity that they are raising basically thought, maybe it's a bond offering. I don't know how you want to call it. They're not publicly traded, but basically they're saying we're going to give you a 7%,

we're going to take X number of dollars from you to get involved with this. Let's just say it's $100,000. We're going to pay you 7% per year for the next seven years. and then we are going to give you all that money back in seven years, but you're not going to be able to participate in the profits of this ATM portfolio beyond that. So if it does under 7% return, that's our problem. But let's say we take that $100,000 and have a 40% return because we've got, you know, strip clubs and casinos only.

You can't participate in that upside. So, you know, people cut all kinds of weird deals in the industry. I don't know if that's germane to anything we've been. talking about. It's just an interesting fact that I, you know, when it came across my desk, I was like, I would not put money into this just because why would I not want to be able to participate in the upside if you get, you know, every best location ever? But those guys are the types of people who do take on the Walmarts and the 100 chain pilot gas station franchisee and those type of things. Hey, if you invest in the bond at 7%, I guarantee you no one ever shoots at you.

mission accomplished if that's the goal for sure for sure all right well this has been a fascinating episode of acquisitions anonymous 50 minutes straight with anonymous ATM we didn't even get to the second deal yeah we went we went plenty deep on this one but this was just awesome I think a classic example of some of the most fun episodes we have here on acquisitions anonymous so anonymous ATM PM operator, thank you for emailing us, educating on this space, and coming on the show. It's been awesome having you. Bill, Mills, Mirko, and Michael, you know, as the ghost, I really appreciate you guys having me on.

This was a blast to actually be able to talk about this with some folks who understand the business and look at deals in a different way because, you know, most people in industry don't really get to talk to people about what they do without it being a challenge. So this has been great for me. and if you guys ever want to have have me back, I'd love to be back. And if not, this was a wonderful, a wonderful time with you guys. So thank you so much. And, you know, on behalf of everyone in the Acquisitions Anonymous community,

thank you for doing what you're doing and look forward to being a long-time listener in the future. Awesome. Thanks for being here. And thanks to everybody for listening to another episode of Acquisitions Anonymous.