Savvy Execs Shop Strategic Buys
Economic turbulence has caused many installing security companies to take a conservative approach to M&A. A select few, however, remain active in pursuing strategic growth initiatives. Four executives explain why their businesses continue to acquire…
Acquisition is a well-established means for growing a company. Whether it’s buying customer accounts to increase recurring revenue, enter a new channel, enhance a services portfolio, expand a geographic footprint or gain new technical expertise, acquisitive tactics help fulfill strategic goals.
The electronic security industry is rich with installing contractors that have executed fine-tuned strategic growth plans to become leaders in their respective markets. In recent years, however, recessionary gloom has forced many companies to retreat from pursuing their M&A objectives; but not all. Select security providers are bucking the conservative business approach and are instead keeping their collective foot on the acquisition gas pedal.
How are they doing it? SSI tapped the guile of four executives from leading regional security providers to explain why they remain resolutely focused on fulfilling their external growth objectives. The participants include Mel Mahler, chairman of the board and CEO of Nashville, Tenn.-based ADS Security; Joe Nuccio, president and CEO of Beltsville, Md.-based ASG Security; Pam Petrow, president and CEO of Pittsburgh-based Vector Security; and Brad Tolliver, vice president and general manger, electronic security, of Davenport, Iowa-based Per Mar Security Services.
Find out why these organizations continue to invest in expansion while others shy away in the face of a hostile economic environment. And if you’re a company owner considering an exit strategy, don’t miss these executives’ keen advice on how to best position your business as an attractive buy.
Did the acquisitions your company made during the recessionary period help offset underperforming markets you operate in?
Mel Mahler: We stepped up our acquisition activity but we didn’t actually close more than we normally do. We had a lot more prospects, but we walked away from a lot of deals. If you look at the report I get every week — detailing the prospective acquisitions, both full company and fold-ins — that list got bigger and bigger over the last two to three years. We would go in and learn that they just weren’t good enough. There isn’t anything worse than buying a bad company. We would rather pay a good multiple and get a quality company.
Joe Nuccio: We did not. The reason we didn’t is we have a pretty diverse portfolio. We have all the channels — residential, small business, integrated systems, government. At all of our branches, through internal sales and through acquisitions, we have always covered those opportunities. So we have really just stayed the course. For example, Charlotte [N.C.] for us is a great residential market. It’s a great small business market. We didn’t really have a lot of large commercial like we have in all of our other branches, so we have looked in that area for a large commercial company. That is how we pinpoint. But really the economy didn’t force our hand. Our performance was good in 2009 and 2010, so we didn’t have to bolster anything. We just stayed with the same plan that we’ve had for the last seven or eight years.
Pam Petrow: We responded early and quickly to the economic and market changes over the past few years. Despite the recession there was still business to be won and we focused on those opportunities. Vector has had very positive results in spite of the recession. Therefore, we did not have the need to use acquisitions as a counterbalance to underperformance or to offset spikes in attrition. We were in the positive position of being able to continue our strategy of integrating high quality companies with talented people.
Brad Tolliver: We used to do more larger-scale projects, more integrated-style projects when the building industry was strong and booming. About two-and-a-half years ago we refocused back on RMR growth. As a result of that our RMR growth has been strong and regardless of the challenges of the economy we’re still having solid RMR growth years. In fact, we’re experiencing record organic growth and overall RMR growth. That caused us to refocus. We compensated in the right direction for the lack of the construction industry.
What are your acquisition plans for 2011, and how does it contrast with your organic growth initiatives?
Mahler: We have more prospective acquisitions now in our active working base, but we really feel that we can’t add more than one new location per year. Right now I have four companies in mind — one of those will close in 2011. If two of them came at me I would have to slow walk the other into 2012. You have to really make the people in that operation feel good and successful. Otherwise you just spent the money and you are not going to get the desired results. So we will do one new platform or location per year.
The fold-ins — smaller companies that want to sell their accounts that we fold into our 15 locations — if it were possible I would do one per week. Namely because these are high margin transactions. We have done more than 80 fold-ins. You are able to retain the best salespeople, the best technicians and keep none of the infrastructure. If their accounts average $30 per month in RMR, and your cost is $5 per month to monitor and bill, just think what that margin is.
Nuccio: For us it is lock and load. If we feel there is great opportunity, we are going to be aggressive. There are a lot of opportunities we still have in our [inventory of potential sellers] that we are going to pursue. We think the market and the pricing are right. We think the fits are right and it will continue to leverage our company, so internally we continue to create more internal sales and look at different channels. We look at what are the best opportunities to opening up new markets and our continued strategy of leveraging current infrastructure by adding a channel into it, or just more customers to sell to has worked really well in this economy for us. It has also worked well for the buyers.
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