How ATM Route Businesses Make Money

0:00Hello, everyone. Welcome back to Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. I am one of your hosts, Bill D 'Alessandro, and this week I am with Heather Anderson and Ms. Mills Snell, and we have a very interesting, unique deal. It is an ATM network with 642 ATMs, some of which they own, some of which they manage for other people, million bucks of EBITDA, apparently a very passive business, but there is a twist. All 642 ATMs are in gentlemen's clubs nationwide. So there are definitely some unique wrinkles that come with that end market.

0:42So we talk about those. Mills actually has some very relevant experience looking at ATM network deals. So he gives us a little bit of inside baseball on that. This was a really fun episode to record. I hope you enjoyed this episode of Acquisitions Anonymous.

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1:37They're passionate about helping entrepreneurs like you take the next big step. So don't wait to make your business ownership dream a reality. Visit acquisitionlab.com today to learn more and schedule your free consultation. And when you do, be sure to tell them the Acquisitions Anonymous podcast sent you. All right. This is going to be a great episode of Acquisitions Anonymous. Just the pre-show banter alone, I can already tell. We just have to get right into the deal. I don't, there is no lead in that I can do justice to this deal. You could say it's going to be a banger. It is going to be a banger, certified banger, even before recording.

2:12So shout out to Michael's open claw. Uh, even though Michael's not here in this episode, uh, which is finding us deals. I don't know if I found this one. I think this might've been from a friend, but we are now crawling the internet with open claw for deals. Um, but our favorite deal was sent to us by our listeners, which I think is, is this one. This is, let me put it on the screen. hold your breaths. This is a$1 million EBITDA ATM route, but there's a wrinkle. They're all at gentlemen's clubs. So this is a 642 ATM business. It says they're asking$5 million. It has$6.6 million of gross revenue and almost exactly a million bucks of EBITDA.

3:00it has been around since 2001 who wants to learn more about how this business works i love that it says transform your investment portfolio because nothing in your current investment portfolio is quite like this that is true you will be diversifying your portfolio all right let me tell you more uh transform your investment portfolio with a premium atm route delivering over a million bucks of annual ebitda step into ownership of a turnkey cash generation machine that has dominated the Gentleman's Club ATM market for over 25 years. This exceptional opportunity delivers immediate cash flow through 642 strategically positioned ATMs across prime locations nationwide, generating 6.6 million bucks of annual revenue and proven EBITDA exceeding million dollars.

3:45Your investment will deliver immediate high yield returns, generate substantial monthly cash flow from 103 owned terminals, which average 191 transactions each, plus processing income from 539 managed locations. So Mills, I'm going to ask you to break that down for me once I get to the bottom of this. A recession-resistant revenue stream at the gentlemen's clubs. Cash-based entertainment venues create consistent demand regardless of economic conditions. Man, that is one of the most euphemistic sentences I've ever read. Cash-based entertainment venues. Hands-off operations, which as you may know is a rule.

4:29Third-party contractors hire all vault cash, loading, maintenance, allowing you to collect profits day-to-day or without day-to-day operational burdens. Inherit the premier reputation as the go-to ATM operator in this specialized niche with 99 % contract renewal rates demonstrating unmatched loyalty. Leverage established relationships and proven systems to expand your ATM network and multiply your returns. Minimal management requirements. Streamline operations means you can maintain current income levels while pursuing other ventures or ensuring your lifestyle freedom. Gentlemen's clubs represent the holy grail of ATM placement.

5:10Notoriously difficult to penetrate, but incredibly lucrative once established. You can't use the word penetrate. This business solves the investor's challenge of finding truly passive income with exceptional returns. Your acquisition includes immediate access to premium locations, established vendor relationships, and a proven operational framework that has generated consistent profits for over two decades. The seller's 25-year track record as an independent operator and deployer demonstrates the sustainability and growth potential of this unique opportunity, positioning you to capitalize on a specialized market with significant barriers to entry for competitors.

5:49So again, there's one part-time employee, it says. So remember they said earlier in the listing, there's a whole bunch of third-party contractors that do quote-unquote everything. 103 high-performing ATM terminals that they own, principally located various gentleman clubs throughout the United States. So this is not regional. This puts you in the power seat. Dominate this market that has limited competitions. The relationships that come with this portfolio growth will be easier than expected. Also, you can expand into other products and services to the same clients. Seller financing is available.

6:24It says the vault cash loading and servicing of the seller's ATM route is handled by various third-party load and service contractors. Servicing customers, the route has been in place for 25 years. This is demonstrated by the company's renewal over 99%. Seller will provide buyer with all training and post-sale support. It says this guy is retiring. The business is based in Newark, New Jersey, but again, it says that the ATMs are everywhere. So, ATM network with a twist. What do you guys think? Well, he's got a specialization here. That's what it sounds like to me, normally I think of these as route-based and geographically based.

7:03And this one, because it's spread out all over, I'm a little curious how they manage the network of contractors that service the actual ATMs. That seems like it might get a little complicated, but it seems like this owner, this seller has just built a niche within serving strip clubs with their ATMs. Yeah, 642 of them. That's a lot. Yeah. Not that many in Newark, New Jersey. No. Yeah. So, I mean, ATMs are just such a fascinating business. It's almost like the roll-off business that we, you know, talk about being the white whale because you're spending, an ATM might cost somewhere between like$2 ,000 and$5 ,000.

7:48And there's two ways that you get paid. There are surcharges. You go to the ATM, you swipe your debit card. If you want$20 or if you want$200, it charges you a surcharge. And it might be$2 or$5. Or you may have a relationship with your bank where they say you can use any ATM and like they'll reimburse you for it or whatever. But the surcharge is charged at the machine. You also, as an ATM owner, get what's called interchange, where you're getting paid on the back end by the bank or credit card processing, like Visa, MasterCard, or these different networks. What's fascinating about the business is the money leaves your ATM.

8:30Like if I go to the ATM and take 40 bucks out, money leaves the vault in the ATM and I get it back overnight into my bank account. the difficulty with these businesses is one the logistics of moving a bunch of cash around and all the issues that come with that two the working capital needs are insane and they're perpetual like it is your inventory i looked at a much smaller portfolio than this and you actually run into issues with sourcing physical cash so local branches don't hold enough cash for your vaulting. And they do not say this in here, but like what you have to figure out is how much money is actually in circulation because let's say you're doing it yourself, which is how most people start.

9:17They buy a couple ATMs or they have 10 or something like that. They maybe own their own convenience store chain and they put ATMs in them. You're running around filling the machines. You have to have the physical cash to go put it in the machine. If you have$10 ,000 in the machine and it runs out, obviously that's a big problem, but you don't want$100 ,000 in the machine because it's an inefficient use of your working capital. So I ran into an issue with the one that I looked at. It was only about 100 owned, which is, I guess, it's kind of similar in that he's managing, you know, over 500 for other folks.

9:52But you have to actually place orders with the Federal Reserve branches to get cash to your local branches or your regional branches to actually have enough money in circulation. Like it becomes a real logistical problem. So there's, you're telling me they're like, there's literally like an upstream supply chain management issue. So it's not like, you know, a typical business just orders from their supplier and it comes in. And in this case, your supplier is the bank, is your local bank branch. But you've got to manage the upstream supply chain from your local bank branch all the way to the regional Federal Reserve.

10:24Yes, yes. Because like, and Heather, you came out of the banking world, but like banks just don't hold that much cash. There's literally no incentive and there's no benefit for them to have. It's a liability to have that much physical cash. It encourages bank robberies. That's one of the first reasons that they stopped holding so much. They used to have big vaults and they stopped all of that. So yes, they want to, I guess, just in time their cash inventory, basically. And so if they've got clients, basically what you'll find is in the bank branch network, maybe they'll have one or two regional branches that are sort of the cash branch that will manage cash.

11:04So you have to make sure you know where that one is. And then you've got to work with their management to tell them when you're going to be meeting certain amounts so that they will have it. And they don't want to hold on to it. They want to get it and get it to you probably same day is what I would imagine. Yeah. So what a lot of people do, and they reference this, is they use third-party vaulting services, which is expensive and it eats into your margin, but it is deferring that risk to like, I don't know that Garta does this, but like you see armored truck companies, right? And they're the ones who are obviously helping with this.

11:40I don't know. And I think there's some different service providers. Garta like will go pick up cash from, you know, Walgreens and help get it, you know, the flowing the right way or Walmart or wherever. That's Garta and Brinks. they're like a reverse cash logistics. Like they're sucking cash out and bring it back into the banking system. This is forward cash. It's taking cash out of the banking system and putting it in ATMs. And you're basically just saying, okay, I have out of my surcharge of$2 or whatever, I'm just going to start decreasing incrementally for how hands-off I want to be. The other big part of this is the best locations, it's all negotiated.

12:20So if you go to a convenience store owner and say, hey, I want to put an ATM here. They're going to say, how much of the surcharge do I get? And I think the rule of thumb from what I remember is around 50-50. So the convenience store owner is going to get a benefit from having an ATM on site because people come in, they spend money, things like that. But to park it in their facility, which I think you have to connect the power and maybe a phone line. There may also be - I bet they're cellular now. Yeah, I think now. But they're like, look, it's floor space for me. And so I need to make money based off of this.

12:53So you're constantly negotiating those deals at these individual locations. The surcharge at a gas station or in a convenience store or in a pharmacy or a local whatever is pretty minimal. It's$2 to$5. Yeah. The reason that this is such a premium portfolio is that I, from what I've heard, the surcharge at places like this at adult, you know, entertainment places is like$20 plus. And they are high volume machines. Like people at these establishments aren't getting a 20 out. They're getting, you know,$500 cash out. So it's high-baught the establishment is paying in cash. Like, it's a cash establishment.

13:38Like, there's... Yes. Right? Yes. Well, and that's important because cash usage is going down everywhere else. And so is ATM usage for cash, but probably going to stay pretty stable in the surplus for many reasons. Yes. Yeah. Casino, same way, right? If you're at a casino, the surcharge is 20 bucks or whatever. It's just crazy. But to your point, Mills, how much of the surcharge is the operator actually keeping? You know, in the scenario. That's where it comes down to, like, he mentions here in the listing, he owns machines and he also manages machines for other locations. So I think if you looked at a similar portfolio, a commiserate portfolio that was 100 % owned, the unit economics would be very different because it would be like owning and operating your own real estate and managing your own real estate versus just being a property manager for somebody else.

14:33Now, there may be some layers to the management of this, why these strip club owners are not, you know, going direct to a vaulting service. There may be some other kind of element to it that I'm not aware of. But it seems fairly durable, right, in terms of the demand and like where they are and ATMs are not going to go away in those places. What I would be worried about is, you know, is there customer concentration in these 539 managed locations? The ATM world is like kind of wild west and like a little bit, you know, obviously any industry where you're dealing with a ton of cash just opens up a whole can of worms.

15:15Um, I know people who own ATMs. I actually know somebody who owns ATMs in, um, some, uh, strip clubs and every few years they have a problem. They don't use a vaulting service. Every few years they have a problem where the guy that they use and they trust and have like sent around with a hundred thousand dollars cash for years and he's been fine, takes off and runs and they're like chasing him down. And it's not really, they're not like using law enforcement for this kind of thing. Like it's a, it's a murky business. at best. Yeah. So you mean, and they're using like a PI, like they're not calling the police.

15:48This guy. Yeah. Like, like a gangster basically is like hunting this person down and they're going to like break his legs, you know, dog, the bounty hunter is going to find him. But, but not a, not a TV PG type version of it. Yeah. Do they usually find the guy? The impression I get is that they always find the guy. They always find the guy. So let it be known. They always find the guy. If you steal, if you're stealing$100 ,000 cash from somebody, it's usually a person that you don't want to steal from, right? The people who have this much liquidity in like physical cash are used to, you know, dealing with the dynamics of it.

16:25And like, you just have to like carry a big stick in this instance. Yeah. So let's, Mills, let's dig in on kind of this owned versus operated model here. So he says, or the listing says he's got 103 owned terminals and then 539 managed locations. Is your assumption that the managed locations are owned by the strip clubs themselves? Yeah. Yeah. Or, or some other third party, you know, who is like, Hey, I don't want to mess with it. And like, I can just go to you and you turn Kia and I'll give you some of my margin. Well, that's what was interesting because I was imagining if there's a third party involved, there's literally three, there's the location, the strip club, there's this guy, the manager, and then there's the owner of the ATM also.

17:06So now there's three hands in the pot. And a vaulting service. So there's a fourth, like a service provider that he's procuring for these other people. I think that if you're an owner of an ATM and you're not managing it, you have a management service, you're not just using a vaulting provider, you're using a management service who is using a vaulting provider and you're splitting with the owner, how much VIG can be left for the guy who's passively owning an ATM in this scenario? Yeah, I think it does get pretty thin. Now, because of the industry that they're in or the segment that they're in, I think that there's a lot more margin to go around.

17:45I mean, this guy, Jeff, the broker on this, Jeff Sosville, ATM brokerage, I think he is the go-to guy. I recognized his name. If you go to his website, he's got tons of routes for sale and has routes that have already sold. And they range in size from$100 ,000 to several million. Bill, there's a Charlotte, North Carolina ATM portfolio for$3.5 million. It has 604 ATMs in Charlotte and in the surrounding area. Um, and I, maybe this is more common than I thought, but like it says the seller owns 139 and, uh, the remaining ATMs are owned and vaulted by 10 to 15 operators and 50 merchants. And that's another 465.

18:41So I think there is some precedent for there to be a multi-layered thing going on here. Interesting. so what's also interesting to me is this 99 contract retention renewal rate yeah because my understanding of the atm business is on one hand like it's great like you get your atm in and you you kind of walk into a convenience store or strip club in this case you go hey you don't have an atm unlikely strip club doesn't have an atm but you're trying to often displace an existing ATM. And you go, oh, how much has the other guy given you? He's giving you 50 % of the fee. I'll give you 60 % of the fee.

19:20Right? So you're kind of always getting cannibalized. And the ATM route industry is one of those where there's just a ton of bottom fears, you know, a ton of like small network. It's kind of like the vending machine industry too. We're like, you can get into this for not very much money. Like, you know, people have 10 and they try to get an 11th. So what's fascinating to me is that this guy has a decently sized network, 642, and he's not getting cannibalized at all. It does seem to say there's something special about running an ATM for a gentleman's club. And I'm guessing it's that it's the turnover of cash is probably very high.

19:59That's my guess. And so if I'm a gentleman's club and I want to make sure I never run out, the ATM never runs out of cash, I bet they've all got experiences where it did run out of cash. And this guy has learned how to make sure that doesn't happen. But that does make this probably a more difficult ATM business to manage. And it also sort of says this is a more heavily working capital intensive ATM business than the average. That's my guess. Probably. Yeah. But what's interesting, though, Heather, is I would think, like as you described, this guy would have developed custom operations, et cetera, if this profile was so different.

20:37But he's using third-party management services and he has one part-time employee. So that seems to me like any other ATM operator also using the same third-party service providers could, because these same third-party service providers are also doing other non-Gentleman's Club ATMs on their same route for other operators. So like, what is the moat here? He clearly has one. We don't know what it is. I don't know what it is. I'm a little bit wondering if it's something maybe even unseemly where it's cash back under the table. He knows how to bribe the right people. I wonder, because why would this guy consistently be able to lock it up?

21:24I mean, there's some brand value. Like, hey, we're the ones that do gentleman clubs. and you go to your gentlemen's club conventions and everybody is using us and obviously it's us. But like, still, there's gotta be something more to it. There's more to it. Hey everyone, it's Bill. And I wanna tell you about maybe the most exciting sponsor we've had in a long time on the pod. It's called CapitalPad. And it is the thing that I wish existed when I started my journey of operating and investing in small businesses. So CapitalPad is a marketplace for acquisition entrepreneurs that is people who want to buy a business and need capital to list their deals and solicit capital from other people who want to invest in acquisition deals.

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22:45It's founded by my friend Travis, who is a phenomenal entrepreneur in his own right. So if this sounds like something that's appealing to you, if you want to buy a small business and need capital, or if you want to invest in small businesses, go check out capitalpad.com and tell them that Acquisitions Anonymous sent you. One other element of this industry that's kind of interesting is there's these regulatory waves that come. I think in the early 2000s, around 2010, it was ADA compliance. And every old ATM had to go away and you had to have an ADA compliant ATM. And then like in 2015, EMV chips, all the old ATMs had to go away.

23:26And like people have people, and granted, these are not a hundred thousand dollar machines, right? They're$5 ,000 or something. But the, I mean, ATMs break, like the cash dispenser gets jammed. Like there's all kinds of like little annoying maintenance things, but then there's these larger capex cycles that come and you can't just be like uh i'm not going to put a credit card reader on my vending machine i'll just do cash it's like no you actually are mandated you have to do this and so i don't know what the next thing is and i don't know like where we are in that cycle like maybe maybe the next thing already happened i just haven't looked at it recently or maybe the next thing is coming but as an outsider like you would never know that but when you start to like look into this industry, you'll, depending on when it is in the cycle, they'll say things like 75 % of the, the ATM portfolio has already been EMB, you know, upgraded and you kind of know, okay, I have some deferred capex that's going to have to happen, uh, or the other shoe is going to drop.

24:25So how do you, because of the aforementioned inventory issue bills, I mean, this guy, he wants 5 million bucks for the business, which is 5x EBITDA, which I don't know where these things trade. It wouldn't surprise me if these traded a little higher than kind of your standard small business. Yeah, or something. Especially this one with good retention and it's a little differentiated. But like you're going to pay five million bucks for this business. What happens to all the cash in the machines? How does that work? That's the thing. Like it's the perennial working capital question where the seller is like, that's my cash.

25:02And you're like, yeah, but I need it and I can't, I can't buy it empty. You know, I have to buy it funded. But it's more emotional in this case and tangible because it's literally cash, basically cash, you know? And, and couldn't you get scammed a little bit? Like you have, normally when we're buying inventory, we're going to be able to go to one location or two and do a hard count before close. How are you going to count the cash? I will say the data on this business is impeccable. And And again, like you're getting repaid overnight. The thing that would be difficult to know that you could probably get historical data on, because there's some like, you know, vendor management tools and software and things like that, that these pieces of equipment have.

25:44But you could look back and say, you know, I want to make sure that the seller isn't, you know, arbitrarily like reducing the day's cash on hand in these machines for, you know, six months leading up to a sale or a month leading up to a sale. and then all of a sudden you think i need half a million bucks to stay in circulation but i actually need a million and where does that money come from um it's just you get the benefit is you get repaid overnight so like you're the cash conversion cycle is very quick back to you once the money leaves your machine but then you've got to turn around and simultaneously like dump it back in yeah yeah it's a fascinating business mills what is market though like it this guy and it probably is his cash in those machines, right?

26:27Like, because he's built this up over time. Although I guess it's only his cash in about a hundred of these machines. It's somebody else's cash in 539 of these machines. And I mean, maybe Bill, maybe that's part of like the staying power that he has and the customer retention. Maybe he is like providing some level of float or something that we don't really know. So the Charlotte portfolio had a little bit more info. They're asking three and a half million. the income over the last 12 months in terms of profitability it looks like was somewhere between 800 ,000 and a million and they say the additional rotating vault cash to load the machines weekly on the Charlotte portfolio is 1.5 million dollars so it's trading for less and like to put it into perspective, that's a million and a half dollars weekly in circulation on about the same size portfolio, but a more commoditized portfolio.