How to Value an ATM Business

How to Value an ATM Business: What Small ATM Routes Are Really Worth

The ATM industry has now been around long enough that many of the independent operators who entered the business during the rapid expansion of retail ATMs in the late 1990s and early 2000s are reaching retirement age. Some of these operators have spent 20 or 30 years building their portfolios one location at a time. They may own 10 ATMs, 25 ATMs or 50 ATMs, and while they never set out to build enormous companies, many have created small, profitable businesses that have generated dependable income for decades.

As these operators begin thinking about retirement, more established ATM routes are going to change hands. There are other factors encouraging owners to consider selling as well, including the increasing difficulty some larger independent ATM operators experience maintaining convenient banking relationships and managing their cash needs. At the same time, these routes can present excellent opportunities for existing ATM operators looking to expand or new operators who would rather acquire established locations than spend years building a route one machine at a time.

That brings us to an important question: How do you determine what an ATM business is actually worth?

For this article, we’re specifically talking about smaller ATM businesses, generally portfolios with fewer than 50 machines. These routes tend to be owner-operated, with the ATM operator loading the machines rather than the merchant, and they represent a particularly interesting part of the acquisition market because there is a much larger pool of potential buyers. The fundamentals of valuing them aren’t especially complicated, but simply applying a multiple to last year’s earnings without understanding what is behind those earnings can lead to an expensive mistake.

Start With 21 to 26 Months of Earnings

For a small, established ATM business, a reasonable starting point for valuation is approximately 21 to 26 times average monthly earnings based on the previous 12 months. When we say earnings, we mean what the ATM business actually makes after its expenses. You should consider all of the income generated by the portfolio, including surcharge and interchange revenue, and then subtract merchant commissions and the normal expenses associated with operating the business.

For example, suppose a 20-ATM route generated an average of $6,000 per month in earnings during the previous 12 months. At 21 months of earnings, the preliminary value would be $126,000. At 26 months, it would be $156,000. That gives you a starting valuation range of approximately $126,000 to $156,000.

The important word here is starting. Two ATM businesses can each earn $6,000 per month and still have substantially different values. One could consist of established locations that have been operating successfully for a decade, supported by strong merchant agreements and relatively current equipment. The other could consist primarily of locations installed within the last year, with old equipment and little contractual protection. The income may look identical on the most recent statement, but the risk associated with purchasing that income is very different.

Ultimately, an ATM route is worth what a buyer believes its future earnings are worth. The 21-to-26-month range helps establish a baseline, but due diligence determines where the business belongs within that range and whether it belongs there at all.

Merchant Contracts Can Be the Most Important Part of the Valuation

If there is one factor we would put near the top of the list when evaluating an ATM route, it is the merchant contract. The ATM itself can be replaced. What is much more difficult to replace is a profitable location that has consistently generated transactions for years. When you purchase an ATM route, a large part of what you are paying for is the ability to continue operating those ATMs at those locations after the seller is gone.

This does not necessarily mean that a five- or ten-year contract is automatically better than a shorter agreement. In fact, we would rather see a properly structured agreement that continues indefinitely than a five-year contract that already has three years behind it. For example, our own agreements continue unless there is a breach or the merchant receives a better offer elsewhere, in which case we have the first opportunity to match that offer. There isn’t simply a date on the calendar when the entire relationship expires.

A month-to-month agreement can therefore still have considerable value if it properly protects the ATM operator’s relationship with the location. What matters is understanding what the agreement actually says, whether it binds the ATM operator to the location, what circumstances allow the merchant to terminate it and what happens when the ATM business is sold. A buyer should never assume that because an ATM has been sitting inside a store for ten years, they automatically have the right to keep it there after purchasing the route.

A portfolio with clear agreements at its locations gives a buyer much greater confidence that the income being purchased will continue. A portfolio based entirely on informal relationships creates more uncertainty, and that uncertainty should be reflected in the purchase price.

Transaction History Is Extremely Important

The longer an ATM has successfully operated at the same location, the more confidence we generally have in its performance. An ATM that has been inside the same convenience store, bar or other business for ten years has demonstrated something that a six-month-old location simply cannot demonstrate, even if both machines happen to be performing the same number of transactions today.

This is why buyers should ask for as much transaction history as the seller can reasonably provide. At a minimum, we recommend reviewing 24 months of transaction history, but if five or ten years of reliable history is available, there is no reason not to examine it. You aren’t only trying to confirm how much money the route made last month. You are trying to understand whether the business has consistently performed and whether there are trends that could affect future earnings.

For example, a location averaging 200 transactions per month for several years is easier to evaluate than a new location that happened to perform 200 transactions last month. The newer location may turn out to be fantastic, but the buyer has less evidence to support that assumption. When you are paying 21 to 26 months of earnings upfront, that distinction matters.

Don’t Let High Surcharge Revenue Hide a Weak Location

One of the biggest red flags we look for when evaluating an ATM portfolio is a low transaction count combined with unusually high surcharge income. This is an important distinction because someone evaluating a route purely from financial statements can easily overlook the underlying quality of the individual locations.

Consider an ATM performing only 30 surcharge transactions per month but charging customers $5 per transaction. That ATM generates $150 per month in surcharge revenue. Someone looking only at the revenue might think the location is producing a reasonable amount of money, but the more important number to us is the 30 transactions. Very few customers are actually using that ATM.

If the location declines from 30 transactions per month to 20, surcharge income falls from $150 to $100. The ATM only lost ten transactions, yet the operator just lost one-third of the surcharge revenue from that location. The income was heavily dependent on charging a relatively high amount to a very small number of customers.

Compare that with an ATM that has a healthy and consistent transaction count. The underlying location has demonstrated real demand for cash, which gives the buyer a much stronger foundation. Surcharge amounts can change over time, competitors can enter the market and merchants can request different arrangements, but a location with a long history of strong ATM usage is generally more attractive than one whose economics depend primarily on extracting a large surcharge from a small number of transactions.

For that reason, never evaluate an ATM route solely by looking at surcharge dollars. Look at how many people are actually using the ATMs.

How Long Has the Seller Been in the ATM Business?

The history of the ATM operator is another factor we consider. Someone who has operated an ATM business successfully for 25 years and is selling because they are ready to retire presents a very different situation from someone who started an ATM business six months ago and already wants to sell.

If an operator entered the industry recently and is suddenly trying to exit, a buyer should understand why. Maybe there is a perfectly reasonable explanation. However, it should prompt additional questions about whether the locations are performing as expected, whether operating the route was more difficult than anticipated or whether there are problems that haven’t yet become obvious in the financial statements.

The same logic applies to the merchants. An ATM located inside a business that has been operating successfully for 15 years generally provides more comfort than one inside a store that opened four months ago. A new business could become an excellent location, but there simply isn’t enough history to know. The less history available, the more risk the buyer is being asked to assume.

How Much Are the Actual ATMs Worth?

For the types of smaller routes we’re discussing, the physical ATM equipment is generally included in the 21-to-26-month valuation. You don’t determine that the route is worth $150,000 based on earnings and then automatically add the original purchase price of every ATM on top of it. The machines are part of the business being acquired.

That doesn’t mean equipment condition should be ignored. A portfolio consisting of modern, properly maintained machines that should remain usable for years is clearly more attractive than a portfolio where most of the ATMs will need to be replaced shortly after closing. Very old ATM equipment may have little or no meaningful value, and more importantly, it can represent a significant upcoming expense for the buyer.

If the income supports a $150,000 valuation but the buyer determines that most of the equipment needs to be replaced, that should become part of the negotiation. The buyer may need to invest tens of thousands of dollars shortly after acquiring the route just to maintain the income they already paid for. In that situation, negotiating the purchase price downward can be entirely reasonable.

Route Density Matters More Than Many Buyers Realize

Most of the smaller ATM businesses we’re discussing are operator-loaded, which means someone needs to physically get cash to the machines. Because of that, geography can have a meaningful effect on how attractive a route is. Twenty ATMs located relatively close together are generally easier and less expensive to operate than 20 machines spread across a very large territory.

When reviewing an ATM route, don’t simply count the locations. Map them. Consider how long it will take to replenish the entire portfolio, how often the machines need cash and what happens when one ATM requires an unscheduled visit. A geographically concentrated portfolio reduces driving time and makes cash loading, maintenance and emergency service considerably easier.

This is one of those factors that may not appear anywhere on a processing statement but can make a substantial difference in the day-to-day economics of owning the business. A route that looks fantastic on paper may become much less attractive when you discover that several locations require hours of additional driving every week.

Vault Cash Is Not Included in the Purchase Price

Someone purchasing their first ATM route needs to understand the difference between purchasing the business and funding the machines. The seller’s vault cash is not part of the purchase price. That money belongs to the seller and ultimately needs to be returned to them.

If a portfolio has $100,000 circulating through its ATMs, buying the route does not mean the seller simply leaves that $100,000 behind for the buyer. The new owner needs to have their own source of vault cash ready to operate the machines.

This means the actual capital required to purchase an ATM business can be considerably greater than the agreed purchase price. A buyer spending $150,000 to acquire a route may need a substantial additional amount of cash or financing to keep the machines properly funded. That should be planned before closing, not after the buyer suddenly realizes they own 30 ATMs with no practical way to fill them.

Banking Can Become More Complicated as You Grow

Banking tends to be relatively manageable when someone operates a very small route. An operator with only a few ATMs may be able to obtain the cash they need through a fairly conventional banking relationship. As the portfolio grows, however, the amount of cash moving through the account increases significantly, and some banks become less willing to accommodate frequent large cash withdrawals by independent ATM operators.

That does not mean larger operators cannot obtain cash. Armored carriers will deliver cash, and operators can also arrange to pick up currency through local armored-car facilities. The issue is that these solutions introduce additional expenses, procedures and risk that may not have existed when the operator had only a handful of machines.

This has become particularly relevant because many independent ATM operators entered the business during the late 1990s and early 2000s. Someone who started a route at 35 or 40 years old may now be approaching retirement after spending decades loading ATMs and managing cash. Banking and cash logistics can become another reason an established operator decides that it is finally time to sell.

Why Smaller ATM Routes Can Be Attractive Acquisitions

There is an interesting advantage to smaller ATM businesses when it comes time to sell: there are more potential buyers. A profitable 20- or 30-machine route can potentially be purchased by another local ATM operator, a regional operator looking to expand or even a well-capitalized newcomer who wants to enter the business with an established portfolio.

As the size and purchase price of an ATM company increase, the number of buyers capable of completing the acquisition naturally decreases. That can make routes with fewer than 50 ATMs particularly interesting. They are large enough to generate meaningful income while still being within reach of a relatively broad buyer pool.

For an existing ATM operator, acquiring a small route can also be considerably faster than trying to build the same number of locations organically. Finding 20 good merchants, negotiating 20 agreements, purchasing and installing 20 ATMs and waiting to determine which locations actually perform can take years. Purchasing an established 20-machine portfolio gives the buyer immediate locations and, more importantly, historical data showing exactly how those locations have performed.

Owner Labor Is Typically Part of the Business

When evaluating a small owner-operated ATM route, we don’t automatically deduct a theoretical employee salary simply because the current owner personally loads the machines or manages the locations. The owner’s labor is part of the business model.

That doesn’t mean the buyer should ignore the amount of work involved. Quite the opposite. A buyer needs to understand exactly what operating the portfolio requires. How many days per week does the owner load? How many hours are spent driving? Who handles basic service? How frequently do locations require attention? These questions are important because the buyer needs to know what they’re taking on.

However, if the business historically generates $8,000 per month in earnings and the owner spends part of the week operating the route, we wouldn’t automatically invent a hypothetical employee salary and subtract it before valuing the business. For many smaller ATM operators, actively managing the portfolio is simply part of owning the business.

Don’t Automatically Inherit the Seller’s Processing Agreement

One of the most overlooked opportunities when purchasing an established ATM route is the processing agreement. A buyer naturally spends a tremendous amount of time reviewing the purchase price, contracts, machines, transaction counts and vault-cash requirements. Processing can almost become an afterthought, particularly when the seller has used the same processor for many years.

That can be an expensive mistake.

Many longtime ATM operators have been with the same processor or ISO for decades. In some cases, they aren’t still there because they continually compared their options and determined that they had the best arrangement available. They are there because that’s who they started with, the deposits keep arriving and they never had a compelling reason to change.

We recently encountered this exact situation with an approximately 50-machine ATM route. The previous arrangement went through a sub-affiliate of an ISO and included the operator paying away a percentage of the ATM surcharge. The arrangement had existed for years simply because that was how the operator originally entered the business.

When the business changed hands, the new owner reviewed the processing economics and moved the portfolio. The result was more than $20,000 per year in additional surcharge and interchange revenue.

The underlying ATM locations didn’t suddenly become better. The machines didn’t start performing thousands of additional transactions. The economics improved because someone finally examined what was happening behind the processing.

This is why a buyer should never assume that the seller’s processing arrangement should automatically become theirs. Before making any changes, however, the seller’s existing processing agreement needs to be reviewed. Depending on the agreement with the ISO or processor, there may be contractual obligations that affect whether and when the portfolio can be moved.

The Seller’s Earnings and the Buyer’s Opportunity Aren’t Always the Same

Processing also creates an important distinction when valuing an ATM acquisition. There is a difference between what the route currently earns for the seller and what the same route could potentially earn for the buyer.

Imagine that an established route currently generates $8,000 per month in earnings. During due diligence, the buyer discovers that the existing processing arrangement is unnecessarily giving away a portion of the surcharge or interchange revenue. Under a more competitive arrangement, the buyer believes the same portfolio could generate $9,000 or $9,500 per month without adding a single new location.

That doesn’t necessarily mean the seller should suddenly receive a valuation based on $9,500 per month. The seller isn’t currently earning that money. Instead, it represents potential upside for the buyer.

This is where knowledgeable buyers can find particularly attractive ATM acquisitions. They aren’t necessarily looking for bad businesses. Sometimes they’re looking for good ATM businesses that have been operated the same way for so long that nobody has examined whether the economics can be improved.

Due Diligence Determines Whether the Price Makes Sense

Buying an ATM route should be approached with the same seriousness as purchasing any other established business. If the seller says the portfolio earns $10,000 per month, verify it. If they say the machines have been at the same locations for 12 years, verify the history. If they say every merchant is under agreement, read the agreements.

Review processing statements, merchant contracts, transaction reports and operating expenses. Create an equipment list showing the make, model and condition of every ATM. Map every location. Determine the vault-cash requirements and understand how the seller currently obtains their cash. Review the processing agreement and find out whether there are restrictions associated with moving the portfolio after the acquisition.

Most importantly, don’t limit your review to a couple of recent statements. We recommend reviewing at least 24 months of transaction history whenever possible, and more history is even better. One of the greatest advantages of purchasing an established ATM route is that you don’t have to guess how the locations will perform. Years of actual transaction data may already exist. Use it.

How Should You Pay for an ATM Route?

Agreeing on the value of an ATM business doesn’t necessarily mean the entire purchase price needs to be paid on the day of closing. For smaller ATM route acquisitions, a structured payment arrangement can make sense for both the buyer and seller. One example might be 50% of the agreed purchase price paid at closing, with the remaining 50% paid over the following 12 months in one or two additional payments. The exact structure is negotiable, but there can be good reasons for both parties not to put 100% of the purchase price into the initial payment.

Consider a route with an agreed value of $150,000. Instead of paying the entire $150,000 at closing, the buyer and seller might agree to $75,000 at closing, followed by $37,500 six months later and the final $37,500 after 12 months. Another option could be $75,000 at closing with the remaining $75,000 due after one year. The parties could also structure a longer seller-financed arrangement if that works better for the particular transaction.

For the buyer, a payment schedule provides some protection during the transition period. An ATM route may look excellent during due diligence, but the real test occurs when the seller steps away and the new owner takes over the merchant relationships. Spreading a portion of the purchase price over the following year gives the buyer time to confirm that the locations successfully transfer and continue operating as expected.

This can be especially important with a small ATM portfolio because a significant portion of the purchase price is based on the expectation that the existing income will continue. If several locations are lost immediately after closing because of an undisclosed problem with a merchant agreement or the transfer of the business, the buyer could otherwise find themselves having paid full price for earnings they no longer receive.

The deferred portion of the purchase price can also be structured around clearly defined protections for both parties. For example, the purchase agreement could specify what happens if a location is lost during the payment period and distinguish between a location lost because of something related to the seller or the pre-existing merchant relationship and one lost because of something the new owner did after taking control. These details should be clearly documented in the purchase agreement rather than handled with an informal handshake.

At the same time, the seller deserves protection as well. If the buyer is taking ownership of the route while still owing a substantial portion of the purchase price, the agreement should clearly establish the payment dates, amounts, remedies for nonpayment and any security being provided for the outstanding balance. Both sides should have an attorney and other appropriate professional advisors review the final transaction documents.

A structured purchase can also reduce the amount of capital the buyer needs on day one. Remember that the purchase price isn’t the buyer’s only cash requirement. Vault cash is separate and belongs to the seller. A buyer purchasing a $150,000 route may also need a substantial amount of additional capital immediately available to fund the ATMs. Paying 50% at closing and the remainder over the following year can leave more working capital available to properly fund and operate the route during the transition.

There is no universal payment schedule that works for every ATM acquisition. Some sellers will want 100% at closing, while others may be comfortable receiving a substantial down payment and financing the balance. However, for a smaller ATM route, something in the neighborhood of 50% at closing with the remaining balance paid over the next 12 months in one or two payments can be a reasonable structure to discuss.

The important thing is to negotiate the payment terms at the same time you negotiate the purchase price. A $150,000 offer paid entirely at closing is not necessarily economically identical to a $150,000 offer with half the money paid a year later. The price, timing of payments, transition responsibilities and protections for both buyer and seller should be evaluated together as part of the overall deal.

So, What Is an ATM Business Really Worth?

For an established ATM route with fewer than approximately 50 machines, 21 to 26 times the previous 12 months’ average monthly earnings is a reasonable place to begin the conversation. Where the business ultimately falls within that range depends heavily on what is behind those earnings.

Strong merchant agreements, established locations, years of consistent transaction history, healthy transaction counts, reasonable route density and equipment that doesn’t require immediate replacement can support a stronger valuation. Missing contracts, very new locations, questionable transaction volume, aging equipment and other uncertainties can justify negotiating downward.

The mistake is thinking that valuation ends with the multiple. It doesn’t. The multiple tells you what the seller’s current income stream might be worth. A good buyer then investigates how secure that income is, what it will cost to maintain it and whether there are opportunities to improve it.

Buying an ATM Route? Review the Processing Before You Close

If you’re considering purchasing an ATM business, the period before closing is an ideal time to examine the existing processing arrangement. Don’t assume that because the seller has been with the same company for 10, 20 or even 30 years, they have a competitive processing deal. Sometimes the opposite is true: nobody has reviewed the arrangement precisely because it has been in place for so long.

At Best Products Sales & Service, we work with ATM operators and can review the processing economics of a portfolio you are considering purchasing. The goal isn’t simply to move processing for the sake of moving it. It’s to understand what the route is currently receiving in surcharge and interchange revenue, what fees or revenue sharing may be buried in the existing arrangement and whether there is an opportunity to improve the economics under new ownership.

We’ve already seen a change in processing turn into more than $20,000 in additional annual revenue on an approximately 50-machine portfolio. For someone considering spending hundreds of thousands of dollars to acquire an ATM business, understanding that side of the equation before closing is simply good due diligence.

When evaluating an ATM route, don’t stop at asking “What is this business worth today?”

The better question is: “What will this business be worth to me after I own it?”

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If you’re thinking about buying an ATM business – we’re here to help. We would recommend a complete portfolio interchange evaluation by an ISO- not a sub ISO.

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• What is interchange
• How much is it
• What you should be paying- per transaction
• What it should earn you
• What should processing cost you

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