There has been a lot of press recently regarding the announcement of the AlliedBarton, Universal merger. Even though there has been a lot of coverage, very little has been from the perspective of small and regional security guard companies. As a result, I thought that I would share my thoughts on the merger. But In order to support my conclusions, I wanted to provide some background on the organizations and the current security guard industry.
The History of the AlliedBarton Universal Merger
Universal Services of America formed as a janitorial company in 1965 serving Southern California. Universal expanded into the security industry in 1969, with the formation of Universal Protection Service. Under the leadership of the current CEO, the company has grown from $12 million in revenue to more than $2.5 billion and has acquired more than three dozen companies in the last four years.
AlliedBarton Security got its start in 2004 when Allied Security acquired Barton Protective to form their current organization. At that time, Allied’s acquisition made them the largest American-owned contract security services company in the United States. The company currently has annual revenue of $2.0 billion
Following the merger, the new organization AlliedUniversal, will have combined revenues of approximately $4.5 billion. This merger will make AlliedUniversal the largest security guard company in North America and the 3rd or 4th largest in the world behind G4S ($9.89B) and Securitas ($8.02B). Prosegur, a multinational security company headquartered in Spain, and AlliedUniversal will have approximately the same revenues.
The combined company will cover all of North America. As a result, they will be in a position to service any customer or client in virtually any area within North America.
Here are three key takeaways in the area of client acquisition:
- AlliedUniversal will be better positioned for the national account market due to their increased size as a result of the merger.
- Major national and international companies with a nationwide presence require nationwide coverage. AlliedUniversal may now be able to capture some of the market share that those huge national accounts represent from their current national providers.
- Smaller companies with multiple locations may turn away from the more local security firms in favor of the seamless coverage that a company such as AlliedUniversal can offer. Alternatively, some smaller clients might also be inclined to move their accounts to small and regional companies based on the belief that they may receive more personalized service.
In terms of hiring, mega companies like AlliedUniversal may have an advantage over smaller companies because they are able to provide better compensation and benefits. In addition, most national providers are party to collective bargaining agreements throughout the U.S. As a result of their size, they are better able to negotiate more favorable terms with their unions. Subsequently, the security staff working at sites governed by these union contracts are generally paid well above those at non-union sites because of the higher than normal bill rates.
Although security officers may benefit from working for such a large company, when these two companies are fully merged, there will be many management personnel who will unfortunately have their positions eliminated. However, this will create a talented pool of people with industry experience upon which smaller and regional companies can draw in order to bolster their operations.
Universal has been extremely active over the past few years in the acquisition market. We believe this activity will slow significantly after the merger as the new combined entity integrates their respective operations. We find that this would be a prudent strategy on their part.
When they resume their acquisition program, their focus will most likely be on larger security companies. Smaller companies that may have been targets in the past will be less important to them now. This should produce opportunities for larger regional security companies, who were unable to compete with the premiums being offered to sellers in the past, to begin targeting smaller companies for acquisition. For regional companies who wish to grow, these acquisitions may provide incremental profits in a relatively short period of time. Regional companies can buy small companies, and small companies can even buy smaller companies, or possibly merge entities.
Mega companies service governments at all levels to the disadvantage of small and regional companies. These mega companies have more resources than small or regional companies which give them the political and economic power to deal with the bureaucracy of government institutions. This will now be truer than ever, with AlliedUniversal now being able to service every area in North America.
AlliedUniversal, as with all national/international companies, will be able to price more aggressively, especially if they are strategically trying to expand their share of a particular geographic market. As seen in the past after a large merger such as this, there will be downward pressure on industry-wide profit margins due to the pressure from AlliedUniversal’s equity investors to increase revenue and market share.
In summary, where many people are predicting the end of small and regional security companies, I see opportunities for those companies. In fact, I believe that local, regional, and small national security guard companies will now have the opportunity to grow organically, attract key management personnel, and have the ability to make more acquisitions.
By Keith Oringer
About the Author
Keith Oringer is a security executive with 25-years of experience in the contract security industry. He has extensive experience in the acquisition of security guard companies and their valuations. He was the 3rd employee of a national company and was instrumental in growing the company to more than a billion dollars in annual revenue and 46,000 employees. Keith’s key operational roles during his tenure with the company included Vice President, and then President, overseeing a Business Unit with 3,000 employees and approximately $100 million in revenue. His unit lead the way in profitability, client retention, sales, and receivables. Keith holds both a CPA and MBA in finance.