How ADS Security Mastered M&A
ADS Security notched record growth in 2016 and has acquired 16 companies in the past three years.
The famous maxim Southern hospitality is playing itself out in the form of Nashville, Tenn.-based ADS Security, which for acquisition targets has become as hospitable as a Cracker Barrel restaurant for Sunday brunch.
In the past three years alone, the company has charmed, acquired and converted 16 companies into branch locations to extend its ever mightier footprint across its home state, Florida, Georgia, the Carolinas, Kentucky, Mississippi and Alabama.
ADS has found that being friendly with folks doesn’t mean it can’t also be fiercely competitive, managing to strike a highly successful blend that delights customers and associates alike.
“It all comes around to culture, and grounding the company in our foundation – that rock-solid commitment to doing things the right way, and always behaving with integrity, taking care of our customers and employees,” says ADS Security President and CEO John Cerasuolo. “That gets hard to do as you grow, even if you find good companies to bring into the fold through acquisitions and are careful about hiring. You still have to steep those new folks in the culture. The key is not losing connection to what got us here.”
The “here” he refers to is 22 branches, more than 400 employees and its own UL-Listed CSAA Five Diamond Certificated central monitoring station.
ADS Security, which during 2016 reached a major milestone by surpassing $3 million in recurring monthly revenue (RMR), delivers automation, fire/life-safety, video surveillance, electronic access control systems and in excess of 90,000 customers.
All the while the company has been among the industry’s most generous in donating time and resources to community causes and trade associations, as well as sharing experiences and wisdom with peers.
That’s quite an ascent from the company’s founding with 2,000 accounts in 1990. But it’s not too surprising considering ADS Security’s chief architect was SSI Industry Hall of Famer Mel Mahler, widely regarded as one of the industry’s true class acts.
Having joined ADS in late 2007 as his successor, Cerasuolo continues to uphold and champion Mahler’s ideals while expanding the business likely beyond what his predecessor thought possible.
Security Sales & Integration pulled aside Cerasuolo and fellow ADS Security executives Craig Leyers (senior vice president – sales & marketing) and Ernie McDaniel (executive vice president and CFO) to learn more about how the firm goes about its business and courts prospective acquirees.
So pull up a chair, grab some sweet tea and sit a spell as you read about perhaps the greatest Nashville performer you won’t see on the Grand Ole Opry stage.
Former President Mel Mahler built up quite an organization in ADS Security, part of the reason he’s in SSI‘s Industry Hall of Fame. How does that foundation course through and guide the company today?
JOHN CERASUOLO: From the very beginning, when Mel and a few others started the company, there’s been a strong foundation and a few important principles that continue to guide us today.
First, it’s a foundation of integrity. We want to represent our company well in everything we do. We know the importance of doing the right thing. We have a phrase we use, “Do the right thing, regardless of the consequences.”
The second one is to take care of our employees and customers. It’s a laser focus on doing everything we can to support our employees, so they can go out and do a great job delivering the services we provide to our customers. Although the company has changed significantly over 26+ years, that foundation continues, and its strength is what has allowed us to build and scale the organization we have today.
CRAIG LEYERS: I’ve been with the company coming on nine years, so I got a chance to work at the organization when Mel was here.
I saw the impact he had on the organization that was in place at the time. Kudos to him, but frankly under John’s leadership we’ve been able to really grow.
We have taken that sense of culture, sense of integrity, and really doubled down to expand that to the size of the organization we are today.
Let’s talk more about that growth, particularly acquisitions. ADS Security was very acquisitive in 2016 and started off 2017 doing more of the same. Please elaborate on the company’s M&A strategy.
CERASUOLO: We focus on very selective acquisitions to fuel our continued growth, both by growing existing locations and, most importantly, by helping us break into new locations.
We learned a few years ago we are not very well suited to green-fielding new locations in markets we aren’t currently in, and that a better solution for us for geographic expansion is to find top-notch providers in those markets.
We then bring them onto the team and build through the folks we get through these acquisitions. We help build bigger and stronger businesses in those markets.
We’re not buying just to add accounts to our base; we’re buying accounts as a platform for future growth. We finished a great year in 2016. We’ve done 16 acquisitions the past three years, so it’s been very busy for us.
LEYERS: It’s exciting for us to buy into a new market and then use that as a platform for growth; partnering with great associates in branches that may become part of our company.
We then apply a bit of our “secret sauce” – our pricing models, sales resources, operational efficiencies, and all that stuff.
How do you become aware of acquisition candidates? When you go through that process, what are the top challenges?
CERASUOLO: We’ve got a very active, disciplined, thorough process for generating candidates for acquisitions. We basically treat it the same way we would a salesperson selling a sales funnel.
We go out and research companies in the markets we’re interested in, markets across the Southeast generally. We research those companies and identify ones we think are good fits for us.
We reach out to them and try to set up an initial meeting. In our initial contact, our objective is making friends and getting to know people. We share our story with the owners and learn a bit more about them.
If there’s a good fit, we let them know when they might be ready to transition their ownership that they should consider us. We stay in touch with them consistently with face-to-face meetings and keeping them updated on email announcements and things going on at ADS. We basically try to partner with them.
ERNIE McDANIEL: Over the past four years, we’ve come a long way with integrating new locations. We’ve got a team of three folks who go out to a new location and spend two to four weeks training, teaching new employees how to use our software, teaching new techs the software they use as a technician.
It’s training all the way up and down the line. We spend about a month and then come home, and let them do the work while we generally send one or two folks back in.
CERASUOLO: That points to the biggest challenge of getting the transition done. We must earn the loyalty of the employees, present ourselves in
the right way to the customers and get the employees comfortable with our systems.
That way they can get out and about their job of delivering legendary service. When considering an acquisition, what’s an example of something that might be a deal-breaker?
CERASUOLO: First and foremost a deal-breaker is a company that’s built on a culture that isn’t a good fit for us.
Independent of how much RMR they have, and how good their contracts are, how low their attrition is, if there’s a fundamental disconnect between their culture and ours, that’s a deal-breaker.
If there’s a match from a cultural standpoint, there aren’t a lot of other things that would get in the way of getting the deal done. There’s certainly complications; not having good contracts, for example.
But we’ve had a number of cases where we had a company we found out would be a good fit for us culturally, the way they treated the people, the way they treated their customers, but they didn’t have good contracts.
We were able to work with them so that we could overcome that obstacle and still get a deal done.
LEYERS: The answer here is kind of similar to a recruiting model. It’s hire for attitude and train for competence.
And so to echo what John said, as it pertains to finding organizations that we can integrate within our company, so much of it does start with somebody that has the right unspoiled culture that is interested in continuing to engage, and grow, and learn, and do more.
That leads to so many good things, a positive integration experience and our ability to grow long-term in those markets.
How do you balance this acquisitive growth with organic? What is your target?
CERASUOLO: We don’t really have a target. We want to grow through acquisitions as fast as we can, consistent with keeping well-grounded in our values, and continue to find the right kind of companies to partner with.
We shy away from setting acquisition targets because that can sometimes lead you to make bad decisions to hit a goal. If we don’t find any good companies next year, we won’t do any acquisitions.
If we find lots of good ones, we’ll do a bunch. Our approach is we’re going to ride that to the degree we can, again, consistent with anchoring in our values, and not departing from that in making some of these decisions about which companies to partner with in that way.
We’re growing very aggressively organically, and we do have very aggressive and specific targets there. But in terms of that mix, it’s a matter of what comes to us through this prospecting effort on the acquisition side.
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