CTLP/365 Retail Markets

CTLP: Divestiture of 32M seen as likely horizontal remedy

Cantaloupe and 365 Retail Markets have engaged with potential buyers of Three Square Market (32M), a divestiture intended to resolve horizontal overlaps in the unattended-retail market, specifically kiosks, industry sources told CTFN.

Cantaloupe previously acquired 32M in 2022 for $41mn as a way to expand its offerings of micro-market kiosks and vending-management system (VMS).

Many industry sources with whom CTFN spoke said they see Cantaloupe’s previous acquisitions as direct counters to consolidation made by 365, such as its acquisition of 32M or Yoke Payments.

An industry participant told CTFN that Cantaloupe and 32M are still finalizing contractual legal and financial obligations in connection with their merger from a few years ago.

It is possible that once these obligations are satisfied, Cantaloupe will have the ability and motivation, given the 12.5% divestiture cap on target revenues in the merger agreement, to divest 32M to a third party.

Cantaloupe Go, a basic VMS software which gives operators management tools for micro markets, is likely to be divested alongside 32M, according to industry sources.

Two of the industry participants speculated that Europe’s Televend would potentially be interested in acquiring kiosk assets, as it has recently entered the US market and has its own VMS in the works.

A mid-sized operator, who previously spoke with the US Federal Trade Commission in September, prior to the agency’s second request regarding the Cantaloupe/365 merger, told CTFN that he is concerned about market power and pricing given previous acquisitions made by 365. 

For example, he described industry conditions as, first, customers no longer able to get technical service and, second, operators essentially forced to switch to 365 at their own cost.

Asked about a possible behavioral remedy, he said it could ease concerns around having fewer VMS alternatives.

This mid-sized operator said they are tired of upcharges and that the FTC’s likeliest concerns involve a disappearance of other mid-sized independents.

Importantly, this operator inexpensively switched his VMS to a third-party provider and received a better processing rate.

The CEO of a smaller VMS firm told CTFN that when products are unbundled — for example, when a micro-market operator integrates a third-party VMS into a kiosk — operators are often charged “DEXtortion” fees, which include new or increased data charges.

It is currently unclear where the FTC stands on a divestiture, though a remedy package could include behavioral fixes alongside structural ones, such as unbundling products, allowing third-party integration, or potentially remedies related to data exchange (DEX).

Speaking at George Mason University’s law school on February 20, FTC chair Andrew Ferguson said he is “open to divestitures” and “open to negotiating”, saying merger settlements are often the best way to protect competition while avoiding expensive litigation.