Creating a Mega-Company
Founded in 1965 as a janitorial company 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.
In 2004, Allied Security acquired Barton Protective to form AlliedBarton Security. The acquisition made AlliedBarton the largest American-owned contract security services company in the United States. The company currently has an annual revenue of $2.0 billion.
The AlliedBarton/Universal merger is expected to generate a revenue representing $4.5 billion, making it the largest in North America and the 3rd largest in the world behind G4S and Securitas. Prosegur & AlliedUniversal will have equivalent revenues.
Overtaking National Market Share
AlliedUniversal will service all of North America and will be in a position to procure any customer within the U.S. and Canada. Having consolidated to become the largest company of its kind in the U.S., AlliedUniversal is well-placed to secure some of the largest national accounts and overtake the market share of other national firms.
Expanding companies in need of insurance coverage for multiple locations may turn away from the local security firms to favor the seamless coverage that a company such as AlliedUniversal can offer. On the other hand, smaller companies may be inclined to move their accounts to local firms in search of a more personalized one-on-one service that a smaller firm can provide.
Opportunities for Employees
From the standpoint of employees, mega-companies have an advantage over smaller companies in hiring employees because they can provide better compensation and benefits packages. Most are party to collective bargaining agreements throughout the U.S. and are thus leveraged to negotiate more favorable terms for their employees. Security personnel employed by larger firms are generally paid considerably higher wages than those by non-union firms, supported by the higher billing rates that larger companies customarily charge.
After the merger, many employment positions will likely be eliminated, including management positions. 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.
From Mergers to More Acquisitions
Universal has been very active over the past few years in the acquisition market. This activity is expected to slow significantly for some time after the merger as the newly combined entity begins the process of integrating its operations and shifting its focus on restructuring.
After resuming its acquisition program, Allied/Universal will likely focus on acquiring larger security companies than Universal has acquired in the past, and smaller companies that may have been considered in the past will become less of a priority. This will create acquisition opportunities for larger regional security companies to who may not have been able to compete with purchase offers to sellers in the past.
Regional companies looking to expand their operations can target these smaller companies for their growth, increasing their incremental profits. They can acquire smaller companies, and small companies can acquire smaller companies or merge entities.
The Power to Obtain Government Contracts
Mega-companies can obtain large government contracts at all levels to the disadvantage of smaller and regional companies. They have the political and economic power to influence governmental institutions. AlliedUniversal has now entered this category, as it is able to service any area in North America.
Market-wide Drop in Profit Margins
AlliedUniversal, as with all national/international companies, will be able to price more aggressively, especially if they are strategically expanding their share of a particular geographic market. As seen in the past after large mergers, there tends to be a industry-wide downward pressure on profit margins due to expectations from its equity investors to increase revenue and market share.
Despite the disruptions these large mergers can create in the market, local, regional, and small national security guard companies will now have the opportunity to grow organically, attract management, and have the ability to make more acquisitions.
About Keith Oringer
Keith is a security executive with 25-years of experience with extensive experience in valuation and the acquisition of companies. 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.