Over the last several years there has been an extremely high volume of consolidation with security guard companies primarily by a few of the national companies. As a result, there are opportunities for the small and medium sized security guard companies. Set forth below is a discussion of the merger and acquisition integration issues and how to position your company to capitalize on these opportunities.
Merger and Acquisition Integration Issues
- 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.
- 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 that the detail presented is in 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 can be 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.
3. 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.
Position Your Company to Capitalize on These Opportunities
1. 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 that are being serviced by national companies and /or those serviced by recently acquired companies. Make a detailed “Hit List” of those accounts. Make sure all of the accounts on the list are attractive and 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 to the client.
- Begin Developing Relationships with those Clients. Put your company in front of the prospective client contacts. When the prospect finally needs to make a change, you need to be the first call they make.
2. Firm up Service Quality
- Introduce and Integrate Technology. At this point in time, most large security companies (and many smaller ones) are using security guard management systems. If the prospective client is used to having this technology, they will want to continue with it. Consider using one of these systems, like Security Patrol Track, TrackForce, Officer Reports, or others.
- Bring Policies and Procedures Up To Date. If you have often thought of developing formal policy and procedures, now is the time to do it. Guard handbooks are essential, as are formal disciplinary policies, etc.
3. 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 1) startup costs such as uniforms, background investigations, and unbillable training and 2) 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.
Security ProAdvisors, LLC would be pleased to discuss your strategy with you to assure that your company capitalizes on these opportunities.
Written by: Keith Oringer
Keith is a security executive with 25-years of experience with extensive experience in the acquisition of companies and valuation. He was the third employee of a national company and was instrumental in building the company over 20 years to over a billion dollars and 46,000 employees and the President of a $100 million business unit. Keith holds both a CPA and MBA in finance. You can reach Keith Oringer, President of Security ProAdvisors at 908-470-0027 or at firstname.lastname@example.org. Please visit our website at www.SecurityProAdvisors.com for more information.