For almost 90 years, Guardian Alarm has prospered by following a time-tested growth strategy – expansion into select markets via purchasing a series of small firms and then growing their business organically. Since Milton Pierce founded the company in 1930, Guardian has spread from its Detroit base to Cleveland, Toledo, Cincinnati and other Ohio cities.
Today, Guardian provides a comprehensive suite of security solutions to more than 120,000 residential and commercial customers, as well as medical monitoring services to 45,000-plus customers.
“M&A is very important to us because it allows Guardian to leverage company assets to drive investor value,” says Tom Erhardt, the company’s President and COO. “It is a significant piece of the company’s plan to double in size over the next four to five years.”
Finding a Cultural Fit
As Guardian’s experience demonstrates, M&A is an excellent tool for moving into new security or medical monitoring territories. Greenfield expansion requires an upfront investment and the cash to support the new operation until RMR reaches the break-even point; on the other hand, acquisition produces an immediate RMR boost while delivering advantages such as in-depth knowledge of local markets and knowledgeable employees.
By focusing its M&A activities on distinct geographic areas, Guardian has been able to consolidate duplicative services and gain economies of scale.
The company increases the likelihood that its acquisitions will be successful by narrowing the field to firms with similar values and culture. For most of its history, Guardian has been a family-owned business, and it looks for family-owned businesses to acquire. The low attrition rates and high customer engagement typical of family-owned companies makes them excellent prospects for acquisition, while their shared values make them easier to absorb.
“We seek companies whose vision and history reflect a commitment to delivering industry-leading service and to maximizing customer satisfaction at every level,” Erhardt says.
A representative sampling of the companies Guardian acquired over the last decade illustrates the company’s preference for purchasing family-owned businesses. In Ohio, they include ADS Security Systems with nearly 1,000 accounts and Barco Security Services with 3,000 accounts.
Similarly, shared values also provide assurance for companies seeking an acquisition partner. “Owners want to be assured that their customers will be transitioned to a service-focused company that emphasizes customer satisfaction as its top priority,” Erhardt says. “They also want to partner with a company who will value their existing sales, installation and service staff.”
Guardian’s ability to fulfill these expectations gives it a competitive advantage over other companies vying for the acquisition. “If we can successfully communicate to a potential target that ‘our values are your values,’ it goes a long way in ensuring that our offer will be accepted,” Erhardt adds.
M&A Meets Organic Growth
One of the misconceptions about M&A is that it is incompatible with organic growth; in fact, a firm with an aggressive M&A strategy like Guardian’s must also excel at organic growth if its investments are to pay off.
Erhardt points to a number of areas that have been critical enabling Guardian to meet its organic growth targets. Technology is a major driver of growth in the security sector, and Guardian prides itself on being an industry leader in making new technology available to its customers.
Investment in technology on its own, though, is not enough. “Training is a vital part of the equation,” Erhardt says. “Ultimately, growth can be maximized only when the service and support components are as good or better than the technology itself.”
Equally important is listening to the voice of the customer. “It is crucial that we continue to talk to our customers as much as possible,” Erhardt says. “Our growth strategy depends on effective communication and service delivery.”
He quotes the company’s founder, Milton Pierce, to underline this point: “Give the customers good service, take good care of them and they will take care of you.”
As it looks ahead to ramping up its M&A activity, Guardian benefits from the experience of its equity owners – a joint venture of Certares and Vanwall Holdings – and the experience of Capital One as a lender. “They understand our business space and the risks that come with it,” Erhardt says. “They have been instrumental in advancing our goals by helping us to form a clear strategy and by putting in place the tools and incentives to be successful.”
Three Tips for a Successful M&A
Before tackling the complicated process of acquiring or merging with another company, a business should consider the following three crucial factors:
1. Understand your goals. Do you want to expand into a new region, or offer new capabilities to your clients? Make sure you are clear about how a potential merger or acquisition is going to help you grow your business. It is also important that you have a stable financial and operational environment before diving in to the M&A market.
2. Assess the cultural fit. Look for companies that are aligned with your values – from customer service to strong leadership. A close fit will mean a smoother transition and clearer communication throughout what can be a complex process.
3. Find knowledgeable partners. Choose a lender that understands the security industry and can help you structure the transaction to meet your business goals. Look for a firm that has a team devoted to the security industry, that has financed numerous acquisitions, and that is well versed in the market and regulatory trends shaping the business.
John Robuck is Managing Director of the Security Finance lending practice within Capital One Bank's Commercial and Specialty Finance business. To request more info, visit www.securityinfowatch.com/12070948.
