Cardtronics Inc.'s deal to purchase the ATM businesses of EDC Holding Co. LLC will do as much to boost the quality of the buyer's ATMs as it will to boost its quantity.
Cardtronics, of Houston, has dabbled with running on-screen ads in the U.K., but it was more focused on retail banks and co-branding initiatives in the U.S.
By contrast, EDC, of Walnut Creek, Calif., has been more forward thinking about offers through its automated teller machines, experts said.
"They have their ideas about innovation and we hope to germinate those ideas into seeds," said Steven A. Rathgaber, Cardtronics chief executive, in an interview Wednesday. "It's a pretty basic acquisition for all the right reasons … this is essentially a mini-Cardtronics."
The purchase will help Cardtronics move past simple ATM transactions, said Christopher Shutler, an analyst at William Blair & Co. LLC. Cardtronics is already working with 7-Eleven Inc. convenience stores on coupons.
"I know that, after speaking with management, it sounds like EDC has been working on various innovations," Shutler said. "The CEO's primary focus right now is trying to create an ecosystem in which they can help merchants, financial institutions and themselves."
That bodes well for Cardtronics, which is trying to grow by adding services, rather than just increasing the number of its ATMs, said Deutsche Bank analyst Christopher Mammone.
Rathgaber said Cardtronics was approached several months ago by Alpine Investors LP, the private-equity firm that owns EDC.
Cardtronics said the deal will increase its presence in convenience stores, as well as giving it agreements with three new retail banking clients: Fifth Third Bancorp, Citizens Financial Group Inc. and Bank of Montreal's Harris Bank.
The agreement, which is expected to close in the fall, will add 3,700 ATMs to the Cardtronics fleet. The company will own or operate about 41,000 ATMs after buying the EDC business. Cardtronics agreed to pay $145 million for the businesses, to be adjusted for working capital upon closing.
The acquisition would also give Cardtronics an additional 60 financial services kiosks, which are being used primarily for bill payment.
"That's a nice roster to manage," Rathgaber said.
Analysts said that they don't expect regulators to resist the acquisition.
"I would be highly surprised to see regulatory hurdles, given the fragmented nature of the market," said Michael Saloio, an analyst with Sidoti & Co. in New York. "We like the deal, that's basically the gist."
Going forward, Rathgaber said he is always looking for acquisitions that would bolster his company's presence overseas.
"[But] I struggle a little bit more with the overseas [opportunity], just because the markets there are a little [smaller]," Rathgaber explained.
By midday Wednesday, Cardtronics shares were up 2.66%, to $21.96.
