Flurry of M&A Signals More to Come in 2010
NEW YORK — After a year in which economic turmoil all but silenced large-scale mergers and acquisitions, a flurry of recent deal-making could signal a harbinger of what lies ahead in 2010.
November proved to be an especially busy month as several deals totaling more than $6.4 billion created an enormous amount of buzz throughout the security industry.
United Technology Corp.‘s audacious move to grab the entire GE Security unit is expected to enhance its efforts to converge building automation systems with physical and logical security systems. Combined with its acquired holdings of Chubb, Red Hawk, Kidde and Lenel, the GE Security business positions UTC to continue its rise in becoming a dominant player, says Sandy Jones, president of Sandra Jones & Co.
“The fire business is the crown jewel in this acquisition. It rounds out a void UTC had for providing a fully converged solution to businesses that understand the value of having an intelligent environment,” Jones says. “It also gives UTC access to some of the best integrators in the market.”
The timing of the deal is perfect for UTC, she says, because it will fill product and channel voids, plus add even more revenue and eliminate more overhead as the UTC and GE businesses are consolidated while the economy recovers.
Stanley Works, the parent company of Stanley Security Solutions, said in early November it would buy Black & Decker Corp. (B&D) for about $3.5 billion. And while the purchase of B&D will combine the two largest U.S. toolmakers, the deal is expected to have little impact on Stanley’s electronic security endeavors.
On Nov. 17, global security solutions provider G4S signed a sale and purchase agreement to acquire systems integrator firm Adesta from the McCarthy Group and other senior managers for $66 million.
The acquisition gives G4S a reliable integrator for larger-scale work on ports, petrochemical sites and power facilities, says Jeff Kessler, Imperial Capital’s managing director. Adesta’s price tag — which Kessler likened to a “big discount” — highlights the significance placed on recurring revenue when determining a firm’s valuation.
“If there’s a lesson to be learned here, it’s how a great company like Adesta probably should have gone at a high price but didn’t because they didn’t have a lot of recurring revenue,” Kessler says.
Two smaller deals were also consummated. NICE Systems signed a definitive agreement to acquire the security management solution assets of Orsus for $22 million. And in late October, GVI Security Solutions Inc. agreed to be acquired and taken private for about $12 million by investment funds managed by GenNx360 Capital Partners.
The rise in acquisitive activity signals two central trends, Walter Bailey, CEO and managing partner of New York-based investment banking and research firm The EpiGroup, says. Namely, smaller firms are finding it difficult to make it alone in a down economy and especially because of a persistent financing drought. Also, he says, “the large guys are looking opportunistically at strategic transactions that can transform platforms at a reasonable value.”
Notably absent from the spate of recent deal-making are any transactions between $100 million and $1 billion, which would constitute the typical year-end trades, Bailey says. Nevertheless, he suggests a busy time for mergers and acquisitions activity as more industry shake out is predicted to heat up in 2010.
The security landscape, he says, will see companies maneuvering to complete “clean-up transactions to consolidate position” and increase portfolio offerings. “And major industry consolidations as well that reshape the major players’ market share dynamics.”
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