UK independent ATM operator Cardpoint is to undertake a reverse takeover of Securicor Cash Machine Limited (SCM), a wholly owned subsidiary of Securicor plc, for a maximum consideration of up to £9.2 million in cash.
SCM has an installed base of 1232 ATMs, of which 1078 are supplied by IBM under five-year operating leases, with a further stock of 333 ATMs. The deal effectively quadruples the number of machines operated by Cardpoint, providing an estate of 2068 ATMs, and making it the third largest independent ATM deployer in the UK.
Cardpoint proposes to raise approximately £6 million before expenses by way of a Placing and Open Offer of 11,334,867 shares at 53p per share to finance the deal, paying an initial consideration of £5 million on completion. The balance of £4.2 million will be due over the period to 30 September 2005, with all but £500,000 subject to performance criteria.
SCM’s business model is similar to Cardpoint's, where it retains ownership of the ATM and enters into a contractual agreement with the site owner to provide and manage the machines onsite.
Under the agreement, Cardpoint will enter a four year exclusive outsourcing arrangement with Securicor for all cash management, installation and maintenance activities in an effort to reduce costs and boost operational performance.
News of the deal comes as Cardpoint reports a 157% increase in turnover for the six months to end-March 2003, to £2.9 million. The company's operating loss during this period has increased to £0.3 million from £0.2 million in the year ago period. The increased losses are attributed to dramatic expansion in the number of installed ATMs and their relative immaturity.
SCM, which operates a lower marging business than Cardpoint, has also been running an operating loss since its inception in June 2000. Annual turnover for the year-ending September 2002 stood at £8.1 million, with operating losses of £0.2 million.
Mark Mills, chief executive officer of Cardpoint, says the acquisition gives the company critical mass and a faster route to profitability.
"Our team has previously demonstrated its ability to maximise the value of an acquired estate with the acquisition of Green Machine in October 2002, and we already have customers lined up ready to install the ATMs in stock," he says.
To grow margins, Cardpoint looks likely to raise fees charged to consumers for withdrawals from across the estate - a strategy that has provoked criticism of the convenience cash machine market from banks and building societies, which operate fee-free withdrawals. At the upper end of the business, each cash withdrawal generates a gross fee of typically £1.50 which is payable by the cardholder, whilst a charge of 20.9p is payable by the cardholder's bank or building society in the case of a balance enquiry or should the request for cash be refused.
Cardpoint is also looking to build other aspects of its business. The company recently signed contracts with Vodafone and mmO2 for the provision of airtime top-ups for pre-pay mobile telephones at its ATMs via the Link network. The company says it is currently in early discussions with a view to acquiring a business which provides mobile top-ups using secure authorisation terminals situated in approximately 3000 retail outlets.