Over the last several years there has been an extremely high volume of consolidation with security guard companies primarily by several national companies. As a result, I continue to see opportunities for small and mid-size security guard companies. Set forth below is a discussion about the merger and acquisition integration issues that these national companies are experiencing and how to position your company to capitalize on these opportunities.
OPERATIONAL
- Pay Rate Discrepancies: When the acquired company has a dissimilar business base with lower bill and pay rates, it becomes difficult for the acquirer to cross utilize its existing labor pool to fill open posts in order to reduce overtime.
- Uniforms: One of the major costs of an acquisition is re-uniforming the acquired labor pool. In addition, the transition must be smooth or the optics reflect poorly on the acquirer with the clients and the public as well.
- Cultural Differences: Operational cultures within a security force can vary significantly from company to company. Some companies motivate their security staffs through a variety of incentive programs (i.e. Officer of the Month Awards, Holiday Bonuses, etc.). Others manage with more heavy-handed methods. The collision of two such cultures often causes confusion and increased turnover.
- Policies and Procedures Integration: No two security companies have identical policies and procedures. If the operations of the acquired company are not quickly transitioned to the new rules and regulations, confusion is once again the result.
- Client Relationships: Prior to making an acquisition, the risk of client loss must be assessed. While in most cases, the acquirer’s investment is somewhat protected by the terms of the purchase agreement, higher than expected client loss can quickly diminish the financial advantages of the acquisition. All of the factors listed above impact that risk of loss as clients watch very closely how well the acquirer handles the integration. In many, if not most cases, the security clients were content with their security program and the incumbent provider. Most view the acquisition as potentially disruptive. If the acquiring company’s field management does not quickly begin developing solid relationships with their new clients, the acquisition will fall short of its objectives.
ADMINISTRATIVE
- Invoicing: As you know, many contracts have been lost due to the inability of the security company to deliver an invoice, not only on a timely basis, but with the detail presented is a manner that the client can approve and process it. Recently we heard of a company that was asked to take over a contract because the incumbent, whose operation had been acquired, had not sent an invoice in six months despite frequent requests by the client. Although hard to imagine, such situations do occur if the acquiring company does not focus on administrative integration. There are many situations where the invoicing process is better left “as is” until the transition can be made seamlessly.
- Payroll: Payroll and invoicing go hand in hand. If integration of the time collection process is rushed, without the proper amount of planning, paychecks are inaccurate or omitted altogether resulting in turnover, open posts and complaints to the clients by the field personnel.
- Policies and Procedures Integration: As stated above, no two security companies have identical policies and procedures. If all of the administrative policies and procedures of the acquired company are not transitioned seamlessly, confusion is once again the result. These include hiring practices and standards, training procedures, timekeeping, etc.
HUMAN RESOURCES
- Management Distracted: When a company makes an acquisition, one of the financial benefits is the elimination of duplicate staff function. This often goes from senior management down to the supervisory level as the acquirer looks to retain only the best of both companies. Concern over keeping your job is a significant distraction that puts the smooth completion of all the tasks listed above even more difficult. Service quality is often impacted as field managers try to sort out their status within the new organization.
- Employee Turnover and Terminations at All Levels: The new management staff is tasked with consolidating expanded operations and assuring the individuals they want to retain are comfortable and do not make a career move just to protect their income.
For tips on how to position your company to capitalize on these opportunities, please download our FREE guide “How To Position Your Security Company” below. Or for direct assistance on capitalizing on these opportunities, please contact Security ProAdvisors, LLC at 908-470-0027 to discuss your strategy.
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.
You can reach Keith Oringer, President of Security ProAdvisors at 908-470-0027 or at koringer@securityproadvisors.com. Please visit his website at www.SecurityProAdvisors.com for more information.
