How Recent Acquisitions Create Opportunities for Small and Mid-Sized Security Companies

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By Keith Oringer, Security ProAdvisors

Consolidation within the security guard industry has created new opportunities for the small and medium-sized guard company.  Below is a discussion about the merger and acquisition integration issues and how to position your company to capitalize on these opportunities.

Merger and Acquisition Integration Issues

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. Re-uniforming the acquired labor pool is costly.  The transition must be smooth or the optics will reflect poorly on the acquirer with clients and the public.
  • Cultural Differences. Operational cultures vary: some companies motivate through incentive programs; others manage with more heavy- handed methods.  This 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. The risk of client loss must be assessed prior to acquisition. Higher than expected client loss can quickly diminish any financial advantages; clients watch very closely how well the acquirer handles the integration. Many security clients were content with their security program and provider; most view the acquisition as potentially disruptive.  If the acquiring company does not quickly develop solid relationships, the acquisition will fall short.

human-resourcesAdministrative

  • Invoicing. Contracts have been lost due to the inability to deliver a timely and detailed invoice which the client can approve and process.  A company 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.  Such situations do occur if the acquiring company does not focus on administrative integration.
  • 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. If 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, and timekeeping.

Human Resources

  • Management Distracted. When a company makes an acquisition, one of the financial benefits is the elimination of duplicate staff function.  Concern over keeping your job is a significant distraction that makes the smooth completion of all tasks 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.

negotiationPosition Your Company to Capitalize on These Opportunities

Develop Specific Marketing Strategies

  • Create a Target List of Local Clients Whose Providers were Acquired. Most company owners are aware of the contracts in their markets and /or those serviced by recently acquired companies.  Make a detailed “Hit List” of those accounts.  Make sure they are the type of contracts that fit your company’s financial and operational objectives.  Exclude those that are not.
  • Gather Intelligence on Current Pay Rates, Renewal Dates, etc. Gather as much information as you can about the accounts on your list.  Where possible, visit the site and ask questions.  Most field officers will share their pay rate and some are even aware of the rate at which they are being billed.
  • Begin Developing Relationships with those Clients. Put your company in front of the prospective  contacts.  When the prospect finally needs to make a change, you need to be the first call they make.

Firm up Service Quality

  • Introduce and Integrate Technology. Most large security companies (and many smaller ones) are using security guard management systems.  Prospective clients using this technology will want to continue doing so.  Consider using one of the systems that are available to the industry.
  • Bring Policies and Procedures up to Date. Now is the time to develop formal policy and procedures. Guard handbooks are essential, as are formal disciplinary policies.

Assure Adequate Working Capital Levels

  • Calculate the Amount of Working Capital at the Company’s Disposal. The working capital required to take on a new contract is the amount of money required you will have to spend to cover:  startup costs such as uniforms, background investigations, and unbillable training; and the amount of payroll and related expenses you will have to disburse for as many pay periods as it may take before which the client company pays your first invoice.

Make sure your company does not take on more weekly hours than it can comfortably cover.

  • Put a Line of Credit in Place or Increase the Existing Line. To address the working capital requirement, consider putting a line of credit in place. These lines often take longer to have approved than one may expect. Do not wait until you sign a new service agreement before you start the application process.

The author is president of Security ProAdvisors, LLC. Keith’s 25-year industry career includes extensive experience in the acquisition of companies and valuation. As the third employee of a national company Keith was instrumental in building it over a 20-year period to a billion dollar plus firm with 46,000 employees.  Keith served in key operational roles, including president of a $100 million business unit. He also holds both a CPA and MBA in finance.

To discuss your strategy and learn how your company can capitalize on the opportunities discussed in this article, call Keith at 908-470-0027 or email koringer@securityproadvisors.com .  Visit www.SecurityProAdvisors.com  for more information.

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