Exec: Ares/Convergint relationship not a ‘typical acquisition’

One week ago, Convergint Technologies announced a new “financial partnership with a fund managed by the Private Equity Group of Ares Management” (read the official release at www.securityinfowatch.com/12395515), which caused a bit of confusion in the industry as to whether the move was an acquisition or not – with Convergint sticking to the “partnership” wording and Ares itself calling it an acquisition.

While Dan Moceri, Convergint’s co-founder and Executive Chairman, admits that Ares’s buyout of the KRG investment in Convergint does qualify it as an acquisition, he couches it by calling it atypical: “(Acquisition) is the proper wording, but the distinction that we are trying to make is that this is not a typical corporate acquisition. Management still retains a significant investment in the company, but the key difference and the reason why we like to call it a partnership as opposed to an acquisition is because Ares is really a financial partner to us – they aren’t a strategic company coming in and looking to manage the company on a day-to-day basis.”

Moceri continues: “When you look at a lot of corporate acquisitions, they are based on cost synergies – and we’ve got a number of those in the industry right now, where companies come together and make more money by taking out cost – which generally means dealing with headcount. There are no cost synergies in this relationship with Ares – we are only looking at the revenue enhancement side to continue the growth we’ve had.”

Moceri says Ares is looking to invest in the existing Convergint organization and leadership team. “We’ve always had a financial partner – this is our fourth – and we’ve managed and led the company the same way for the last 17 years to achieve the growth that we’ve enjoyed,” Moceri says. “That’s the distinction of what we are trying to communicate.”

Impact on M&A Strategy

Convergint made seven integrator acquisitions in 2017 alone: Post Browning (Feb.), Operational Security Systems (May), Integrated Security Systems (June), SigNet Technologies (July), Integrated Security Systems Division of SDI Presence (Sept.), Security Products Company (Nov.), and Genesis Security Systems (Dec.). In all, Convergint has acquired 19 companies in the past five years.

Moceri points out that Ares will bring more resources to the table than did KRG Capital Partners, enabling Convergint to continue – and perhaps accelerate – its already breakneck-paced M&A activity. “As we go forward, we will continue to hire one or two colleagues (ie. employees) every day around the world, the pace of growth will continue for many years into the future, including our successful acquisition strategy – where you will see more announcements in the months to come,” Moceri says, adding that the organization plans to open new offices where necessary to service local customers.

Does the infusion of more capital mean Convergint will actually increase its pace of acquisitions? “Technically, yes it can increase our pace of acquisition,” Moceri says. “When you look at the size of Ares vs. the size of KRG, you can see how it would be possible; however, in reality, if you are going to do them right, there is a pace that you must go at to successfully integrate these companies in. There’s no such thing as a cookie-cutter acquisition strategy – we don’t slam them all together on day one, and we don’t take out headcount.

“While we certainly now have the wherewithal to do larger acquisitions – and we may do them in the future – we expect the pace to continue pretty much where it has been,” Moceri concludes. “What we don’t want to do is acquire so many companies that we don’t do a good job of bringing them all together.”