ccording to some Canadian ISOs, their country's retail ATM market tends to lag 18 to 24 months behind the United States. Turn the calendar back that far, and one would see a flurry of acquisition activity in which tens of thousands of ATMs changed hands in the U.S. Among the high profile buyers: Cardtronics, eFunds, Innovus and Access to Money. Though the pace of deals in Canada has not reached that level, it is beginning to pick up, say industry observers.

Maturing Market

"You're seeing a more mature market now," said Gordon Metcalfe, Chief Executive of Ezee ATM, a Toronto-based ISO. "You've got some small guys who are getting tired of the industry, and they're ready to sell. They're tired of being on call seven days a week and having their cell phone ring at 11 p.m."

Metcalfe, an entrepreneur and former owner of several Dave & Buster's nightclubs, said he used his own equity to make eight small acquisitions, including E*Trade Access' Canadian portfolio, before obtaining venture capital from the Newport Partners investment firm in April. Earlier this month, Ezee purchased a portfolio of almost 700 ATMs operated by Montreal's Meta-4 Business Networking Solutions for $5.6 million (U.S. $4.2 million) from technology firm CGI Group.

Metcalfe entered the market in early 2001 with two ATMs at his own clubs. From the beginning, he intended to build an ATM network largely with acquisitions rather than organic growth. "A lot of the high-volume sites were already taken," he explained.

With a staff of just three full-time salespersons, Metcalfe said he doesn't expect to sell more than five machines a month. Following the Meta-4 acquisition, however, Ezee has become one of Canada's largest independent ATM operators with some 2,000 machines. Metcalfe claims to have a handful of smaller deals in the works.

A flurry of acquisitions last month included Calgary, Alberta-based DirectCash's purchase of three small portfolios, a total of some 450 ATMs, and Portland, Ore.-based TRM Corp.'s purchase of 72 ATM locations from Mighty Cash Financial.

Ron Waxman, Chief Operating Officer of Quebec-based Frisco Bay Industries, said that companies with ample capital, like his, are trying to consolidate blocks of ATMs. Like Metcalfe, he said the number of high-volume sites in Canada is dwindling.

"The 'A' sites are disappearing, so now you're talking about growth in the 'B' and 'C' sites. Renewals are where people are spending their time," he said. "The smaller guys want to sell while their portfolios still have value."

Variable Value

But value is in the eye of the beholder, said Ken Nichols, President of Edmonton, Alberta-based Cash N Go, a company with some 1,000 ATMs under contract. While there is "more willingness" to sell now, he believes many of Canada's prospective sellers are asking too much for their portfolios.

"There isn't a good formula for coming to a price," Nichols said. "You can try using the traditional models like multiples of EBITDA for an ATM business, but it's tricky. You've got to factor in the quality of earnings versus just the earnings themselves." Cash N Go and other large Canadian ISOs are adopting a "more cautious approach" than their brethren in the United States and the United Kingdom, Nichols said, believing that some operators in those markets have paid inflated prices for ATM portfolios.

Frisco Bay, which provides security systems and other equipment for financial institutions, in February of 2003 paid $6.3 million to acquire the 50% of Frisco/ATMs Limited that it did not already own. The company estimated that the network of some 1,300 ATMs would yield in excess of $1 million in annual earnings before interest, taxes, depreciation and amortization (EBITDA).

Four months later, Frisco Bay raised $2.2 million to retire part of the debt through a private placement of 243,100 shares of common stock. Following the placement, the company announced its intent to seek a listing on the Toronto Stock Exchange. In January, Frisco Bay agreed to be acquired by Stanley Security Solutions, a subsidiary of toolmaker The Stanley Works, for $45.3 million.

While ATMs weren't a part of Stanley's strategy, Waxman said, Stanley has expressed interest in growing the ATM business beyond the current 1,700 machines, and the infusion of capital from Stanley should help. "It's changed the playing field for us."

Consolidation is a natural result of fierce competition and a crowded market, Nichols said. "Once the margins start shrinking, consolidation begins. We've seen the high margins come and go."

What's Your Hurry?

Mischa Weisz, President and Chief Executive of TNS Smart Network, a company that provides transaction processing for 100 ISO clients, said that Canadian ATM deals are "few and far apart" and will likely remain so, at least for the near future. "It's all about timing," Weisz said. "Lots of folks still have enough machines going out there; there's no reason for them to sell yet."

"The market is maturing, but there's still a lot of business out there," agreed Peter Zoumboulakis, Vice President and General Manager of eFunds' Canadian ATM division. "I'm starting to hear a lot of people say they're interested in selling, but they're in no rush to do so."

Unlike the United States, where eFunds became a major ATM consolidator by purchasing the portfolios of five independent operators in 2001 and 2002, Zoumboulakis said in Canada eFunds will focus on providing transaction processing, cash management and other services to retailers, financial institutions and possibly other ISOs.

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