More ATM Industry Turmoil: Diebold Nixdorf in the Crosshairs

The flurry of news items about the current situation at DN is focused on the financial issues the company is facing as they deal with acquisition-related obligations to a group of remaining Wincor Nixdorf shareholders. And while these issues are real — like the DN stock chart — I think there is more to it than that.

Too Much of a Good Thing

This may be a situation where the combined Diebold Wincor organization wound up having too much of a good thing. Specifically, too much hardware, too much software (remember that Diebold had previously acquired Phoenix Interactive early in 2015) and too many smart people.

Initially, the Diebold Wincor marriage looked good on paper. Two strong industry players — Diebold with a significant presence the USA and WN with a dominant position in Europe — would combine to have a truly global footprint and become the #1 ATM vendor on the planet. Unfortunately, this is where  “too much good stuff" happens. For instance:

1. Big installed base in America, big installed base in Europe. Two sophisticated markets with some fundamental differences.
2. Mature, installed ATM software stack from Wincor, a mature and installed software stack from Diebold, as well as another emerging stack with an installed base from Phoenix.
3. Engineering and manufacturing facilities in the USA, engineering and manufacturing facilities in Europe.
4. Really smart people trying the run the company in the USA and really smart people trying to run the company from Germany.

You get the picture. Any acquisition or “merger of equals” this size takes a fair amount of time and effort to sort through. Even under the best of circumstances, some companies are unable to pull it off successfully. And, in this case, the marketplace did not cooperate. The ATM industry, in general, is struggling to deal with the combined effects of market saturation and competition, as well as widespread promotion and consumer adoption of mobile and alternative payments.

On top of all the internal issues that need to be addressed, DN is also facing some stiff external headwinds. The company does have some great products and people that I, personally, hope are able to weather the storm. Diebold has been around for more than 150 years and it would be nice to see them come out of this whole. (You may recall back in 2015 when the Diebold/Wincor deal was first announced, NCR was also facing similar issues and needed outside assistance to keep going. And, now, both companies are telling investors that the Windows 10 upgrades in 2019 are key to their salvation.) 

What Happens Next?

At the same time, it is fun to speculate on the possible outcomes and their impact on the industry:

1. DN is able to work through this period on their own and right the ship. The official statement from the DN IR website says: “The Company is in constructive and productive discussions with its lenders regarding its future financial flexibility and expects to reach a resolution in the near-term.” Hopefully, they can put a package together and remain an independent organization.
2. A private equity firm takes a significant stake in the company. I assume that this would mean significant cost-cutting and organizational changes, maybe divestiture of non-core business units, etc. There are lots of potential suitors in this scenario. Maybe KKR will be interested in extending their position in Financial Services?
3. Another existing ATM vendor steps in to acquire DN. NCR? Maybe, but I doubt it. I don’t think they would want to add DN to their own existing set of issues. One of the Asian manufacturers? Some of these companies are doing quite well for themselves internationally and could see this as a great opportunity to capture a significant share of the US market.
4. Cardtronics or one of the big ATM ISOs? These organizations have tended to focus on low-cost cash dispensers rather than advanced function machines, but if you become the manufacturer, you can build anything you want.
5. One of the “cash companies” like Brinks or Loomis? This may be an opportunity for them to help protect and extend their role in the distribution channel.
6. What about a one of the big e-commerce companies or one of the large fintechs? Is this an opportunity for Amazon to extend the “brick and mortar” platform they are building? And think of the data…

Reform Needed

While we watch and wait to see what happens with DN, it seems clear to me that the entire ATM industry has reached an inflection point. As the business contracts and consolidates, none of the traditional vendors can continue on as they have in the past. ATM 3.0 is much more than simply allowing access to cash by using a mobile phone. ATM 3.0 will require the industry to move forward in these three key areas:

1. Technology — Yes, we need to ensure that the technology that we use meets the current needs of the marketplace and positions us for the future.
2. Organization — I think DN is an example of an organization trying to do too much.  Too many products, too many smart people, too many moving pieces. (And yes, DN has just announced a new operating model as a part of their Q2 2018 earnings announcement.)
3. Collaboration — Industry participants must work more closely together to improve efficiency and reduce overhead so that we all remain relevant and viable.

Remember, sometimes less is more.