Australian cash-in-transit giant Armaguard is selling its New Zealand wing after rejecting an A$26m bailout from the big four banks, Woolworths, Coles and Australia Post.
The company being brought to the edge of failure, and the conditions supporting the New Zealand sale, are down to a continuing decrease in cash demand making it a sunset industry.
Owned by Australian billionaire Lindsay Fox, the money security firm rejected the bailout late last month after refusing to allow the bailout parties to look at its accounts for due diligence.
Concern over the state of the company and how it would affect physical money supply caused Coles (a major supermarket player across the Tasman) to hoard money over the Easter weekend over concerns any cash ordered would be stuck in the company’s truck.
It managed to secure funding from its parent company Linfox, but its future is still unclear.
New Zealand might not be immune from such troubles going forward.
Last week the Commerce Commission opened a merger application process between Evergreen NZ Holdings and ACM Holdings.
Confusingly, Evergreen (owned by a family trust established by American private equity partner Gavin Wolfe) owns the Armourguard Security brand in New Zealand, while ACM Holdings (owned by Australian Armaguard) runs cash transfer business ACM.
The clearance application filed with the Commerce Commission says Evergreen (Armourguard) and ACM (Armaguard) entered into a sale and purchase agreement on March 28, the day it was reported the AU$26m bailout fell over.
The rationale given for the transaction included the cash-in-transit industry, which underpins the movement and supply of cash throughout the economy, being “a sunset industry” that has “been in decline for some time”.
The parties said the decline was driven by bank branch closures and a sharp decline in the use of cash as a result of cards and digital payments, fewer supermarket checkouts accepting cash and societal changes stemming from the Covid-19 pandemic.
“As a result of the market dynamics, both parties to the proposed transaction have suffered reduced transaction volumes and significant cash flow losses. The margins are unsustainable for both parties to continue operating.”
According to the Reserve Bank of New Zealand, about 70 percent of the population indicated they used cash in 2020 compared with 95.8 percent in 2019.
The application said New Zealand could no longer sustain two large national providers, and the merger would see Armourguard in a monopoly position in New Zealand, much like what Armaguard has in Australia.
In a 2021 issues paper on the future of money the Reserve Bank said consolidation of cash-in-transit providers “seems inevitable in the absence of a policy response”.
In that same paper, the central bank downplayed the risks of a monopoly in the space, “Even if one dominant CIT emerged, this firm would not necessarily be able to extract monopoly rents and thus be in a stronger financial position than the firms it replaced”.
“Banks and large merchants would be important customers and, presented with the prospect of monopoly pricing from their service supplier, may threaten to exit cash services altogether.”
The merger application said the transaction would strengthen the stability and resiliency of the cash economy in New Zealand, citing the importance of cash in the fallout from Cyclone Gabrielle.
It said the merger would also provide the best opportunities for the staff of both companies.
The counterfactual situation put forward to the Commerce Commission was redacted. Counterfactual situations are used by the commission to identify what would happen if the deal didn’t go forward.
Monopoly Watch’s Tex Edwards said monopolies were created in growth industries and sunset industries, but in this case it wasn’t something he was overly concerned about.
He said a monopoly in the space could see the price of dealing with cash going up, which would accelerate the end of cash.
“Woolworths, Countdown Bunnings, your local drug dealer, they don’t want to carry cash, so when prices go up, there’s a financial incentive to stop dealing with it.”
Armaguard’s monopoly position in Australia came to be less than a year ago, after it merged with rival firm Prosegur, citing company failure and widespread disruption to cash access.
In June 2023, the Australian Competition and Consumer Commission approved the deal subject to terms including maintaining existing contracts, continuing ATM services and capped price increases. The deal was opposed by the Commonwealth Bank and Woolworths.
New Zealand’s Commerce Commission is expected to make its decision on July 8.
Cash is the only totally reliable means of paying, especially in emergencies, and individual purchases are not subject to the same level of Big Brother surveillance as eftpos and credit cards. I dread the day that it can no longer be used.