Consolidation has been upon the security industry for some time now but while many people often associate the trend with technology manufacturers gobbling up their rivals, the fact is it has spread to every sector of the market. In late January, Johnson Controls announced that it would be merging with rival Tyco in a move expected to save the companies nearly $1 billion in costs in the years ahead. And, earlier this month, yet another mega-merger deal was announced as guard services firms AlliedBarton and Universal Services of America announced that they too would be joining forces. The combined company, which will operate under the AlliedUniversal brand, is expected to generate total annual revenues of approximately $4.5 billion.
The merger of AlliedBarton and Universal is significant on several fronts. Not only is the combination of the two companies expected to create the largest security company in North America, but it will also produce another large, one-stop-shop for security. While AlliedBarton has almost exclusively focused its efforts on providing manned guarding services, Universal has branched out in recent years into providing technology solutions to supplement its guard force, such as its acquisition of Dallas-based VSaaS provider Thrive Intelligence in late 2013. Universal is not alone, however, in its desire to offer customers the full gamut of security services. Late last year Securitas acquired the electronic security business of Diebold, providing the company with its own systems integration arm to compete with the likes of G4S, which also has its own portfolio of security technology solutions providers.
According to long-time security industry analyst Jeff Kessler, who serves as managing director of Imperial Capital, LLC, the merger of AlliedBarton and Universal is yet another indication that “horizontal integration” among companies that want to be able to offer a comprehensive solution for end users will not be slowing down at any point in the near future.
“Companies who can provide both service and technology, regardless of the sector they are in related to the what the customer wants, is just as or more important than the old methodology of trying to find the best-of-breed individual products and services and trying to cobble them together,” says Kessler. “In other words, the days of integrators looking at masses of different products, services, and software and trying to decide for which customers these products work, those are numbered relative to the ability of certain companies to provide a lot of these things internally.”
Although the guard services business is a relatively healthy one, it is not a business that is growing more than GDP, according to Kessler, who added that it is also a market where profit margins are under pressures. As a result, Kessler believes these companies are looking to offset these pressures by leveraging technology.
“For instance, a full video system, despite what some people would like to tell you, is not going to be capable of protecting somebody who goes out to a parking lot alone at night after work. Sure, you can see a video of what happened – the robbery or the battery – after the fact to try and find the perpetrator, but preventing that is even more important,” says Kessler. “Human beings, in the form of guards, that are on premises and human beings or guards, in the form of responders, which is increasingly important for the security monitoring business, remain very important as long as they up to snuff technologically.”
Kessler says there are essentially two things at play within the industry currently that is driving this consolidation; the evolution and proliferation of technology, such as video analytics, to help prevent and/or analyze events, and the need to still have a physical security presence to mitigate various threats.
“What we are seeing for the first time in the United States, at least since the largest companies were bought out by European firms, is two companies coming together to form a large company that is the combination of a traditional guard company that has focused on the quality of its guards and people in AlliedBarton, coming together with a more aggressive and technology-oriented company in the form of Universal,” explains Kessler. “This combination of high-quality organic growth at AlliedBarton with more technology and a more inquisitive-type management at Universal probably makes a good combination.”
Impact on Small and Mid-Sized Systems Integrators and Guard Firms
While the lines may be blurring between large systems integrators, commercial monitoring firms, and guard services providers, Kessler believes there will still be plenty of opportunities for both small and mid-sized companies in the industry as long as they don’t try to be all things to all people. Kessler says smaller firms have to understand that scale is not the only contributing factor to an organization’s success but it is also the culture they decide to adopt and foster that will go a long way in determining how their company fares in the industry moving forward.
“The ability to prove your value proposition day-in and day-out to your end user to keep them coming back for upgrades, future-proofing, consulting , and all the things that can boost your margin over time and not leave you as just some wire-puller are critical,” says Kessler.
Kessler says that small and mid-sized integrators and guard companies need to partner together or with larger companies in order to provide the value that these one-stop-shop firms will be increasingly providing to their customers. In addition, Kessler says smaller integrators and guard firms need to determine which vertical markets are their strongest and stick with carving out a niche in those specific areas instead of trying to cater to the needs of end users across the spectrum.
“Whether you’re a smaller integrator or a small guard company, you’ve got to pick and choose those spots where you can be the best,” says Kessler.
Kessler warns, however, that just because larger firms may have the resources to provide fully integrated solutions, that they better be able to back them up with superior customer service.
“Those security companies that are large and have developed a culture that focuses on a value proposition to the customer and that are important to the customer because they can be integrated with other parts of the business… if they learn how to do that, those are going to be the companies that are most successful,” says Kessler.
