One Man's Garbage is Another Man's Gold! Part 3 - Direct Cash Payment
Well we enjoyed the conclusion of another such investment just this past week when Cardtronics (global payments processing business i.e. ATMs) announced a bid to takeover our portfolio holding Direct Cash Payment at a 46%+ premium to its pre bid price.
Direct Cash Payments basically owns a bunch of ATM machines in Canada, the UK, Australia, and New Zealand. This business was held in low regard by the market because of the belief that new payment technologies would make ATMs a thing of the past.
In fact this Company was held in such low regard that it sported a 10-13% tax advantaged dividend yield depending upon the date that an investor bought shares over the past couple of years.
The truth is that the business is one that seems to be modestly contracting in the developed world (but expanding in the developing world) in terms of the number of transactions. However, the ATM providers have been successful in raising their fees and offering other services to maintain their business. While many of us use less cash than we have in the past there are still great swaths of the economy that operate on a cash basis.
It is a consolidating industry and we believed that Direct Cash would ultimately be taken over by a bigger player, and in fact we thought it might be Cardtronics.
Interestingly, for those who wished to hedge their bets on the industry, one could have taken a long position in Direct Cash (enjoyed the dividend) and a corresponding short position in Cardtronics (no dividend paid).
We will continue to look through the market's discards for those opportunities where investor's have miscalculated their assessment of risk.