Brink’s Acquisition of Dunbar – Pros and Cons for the Merchant Community

15th June 2018
Contributor:
Richard Kyne
Richard Kyne

The announced intention of The Brink’s Company (“Brink’s) to acquire Dunbar Armored Inc (“Dunbar”) would see the combination of two of the largest armored transport companies in the U.S. The acquisition will likely see Brink’s become the number one carrier in the U.S. in terms of market share. In this blog we explore how these two companies compare in terms of financials and operations, and look at the pros and cons of this deal for merchants.

The Deal

Announced on May 31, Brink’s agreed to acquire Dunbar for $520 million, an estimated 7-8x adjusted EBITDA.

The deal is expected to close by the end of 2018 (subject to closing conditions and regulatory approvals) and would combine the second (Brink’s) and fourth (Dunbar) largest cash management companies currently operating in the U.S.

Brink’s has stated that benefit of the acquisition would include operational improvements (optimized routes and lower cost vehicles), an expanded customer base in small-medium business sector, opportunities for CompuSafe smart safe solutions, and significant potential tax benefits.

The Players

Brink’s and Dunbar are very different companies. Dunbar has been a family-owned business since 1923 and is the largest independently owned armored carrier. The company has experience with security, cash vaults and ATM management. It has focused on improving its offerings in traditional services – as one of the remaining couriers to use 2-person crews –  and providing merchants with a range of innovations to monitor services. Providing services in the U.S. only, Dunbar’s revenue was approximately $357 million for 2016 with an estimated operating profit of $15 million.

In contrast, Brink’s is a world leader for cash management services, offering core products (armored transport and ATMs), high-value services, and security. North America accounts for 39% of Brink’s business (with South America and ROW making up 29% and 32% respectively). Its current strategy consists of two parts – core organic growth and acquisitions – the latter resulting in many strategical acquisitions through 2017 and the first half of 2018 (see box). Brink’s is well on the way to achieving its target of $800 million acquisition investments across 2018 and 2019 combined. Last year, it reported operating profits of $274 million on approximately $3,345 million revenue.

In recent years, the focus for Brink’s has shifted away from traditional services and towards CompuSafe, its fully managed smart safe solution, with over 3,000 orders in the U.S. for 2017. Dunbar also offers smart safe solutions, but has not invested resources to the level of Brink’s and Loomis.

Brink’s Recent Acquisitions:
March 2017 – AATI, USA
Q2 2017 – PagFacil, Brazil
Q2 2017 – LGS, Chile
July 2017 – Temis, France
July 2017 – Marco Transportadora de Caudales, Argentina
January 2018 – Rodoban, Brazil

 

What The Deal Means For The Merchant Community

Potential Benefits

  • Services – This acquisition allows Brink’s the opportunity to optimise its footprint in some areas of the U.S. For example, Dunbar has a large number of depots in the Northeast which should complement Brink’s current offering – improving services for merchants in these areas.
  • Innovation –  Both companies have invested heavily on innovation in recent years, with Brink’s focusing on it’s smart safe solutions and Dunbar investing in solutions to complement traditional armored car services. This could mean that merchants have an opportunity to select from a wider range of innovations such as Dunbar’s EZChange for change ordering and delivering, Valu-Trak (a web-based portal allowing merchants access to their cash management data across the whole estate) and Brink’s 24/7 reporting app, currently being trailed.

Potential Challenges

  • Lessening of competition – As with any horizontal merger, there is a risk of a significant lessening of competition. This is likely to have two major outcomes,
  • Pricing – In many regions, there is an overlap in Brink’s and Dunbar’s footprint, meaning the combined Brink’s and Dunbar entity will now have a combined market share in excess of 50% within some states. Economic theory suggests that this may put upwards pressure on pricing. This could also result in local branch closures for some merchant’s sites, depending on their location, meaning higher pricing as vehicles need to travel further to sites.
  • Service quality – Service quality may be affected in both the short and long-term. It is possible that there will be a short-term impact in the immediate aftermath of the deal, as the companies struggle to implement the new arrangements.
  • Uncertainties – Not only does this deal cause uncertainties for the U.S. cash market overall, merchants currently partnering Brink’s or Dunbar will have questions over their future. In the past, these deals have caused immediate logistical and operational challenges. As a result of acquisitions like this, merchants can end up being serviced by a supplier that they have previously chosen not to work with.
Figure 1: Brink’s Market Share Before and After The Acquisition

Figure 2: Brink’s and Dunbar Proposed Combined  Locations (coverage)

Conclusion

The Brink’s acquisition of Dunbar sees two very different companies join together – a publicly listed global giant and a family-owned domestic player. Given that it combines two of the four largest U.S. players, it will inevitably have far reaching ramifications.

Brink’s have identified synergies which, if realized, could benefit all parties. However, merchants need to be wary of the market power the combined entity will have, and the impact this may have on pricing and service quality.

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