Saints 'n Sinners: a buyer's market

Nothing causes more concern within
the manned guarding industry than the acquisition of one company by another. The Acquirer (ie the purchaser) has concerns that it's a genuinely viable business being purchased. The Acquiree (the seller) is troubled as to whether or not a fair price is being paid for all the hard work that has been put into the business. Then there's the Client, who's concerned that service can only be improved as a result of the deal being done.

It's a time when the contracts of both Acquirer and Acquiree Company experience a wobble. The Clients of both could use it as an opportunity to jump ship if all is not well with their particular contract. Given such a scenario, how might the damage be minimised and the deal enhanced? Let's take a look at the issue from the point of view of all parties involved.

The Acquirer will target an acquisition for a number of obvious reasons. The Acquiree may be strategically located to suit the growing ambitions of the Acquirer. It may have built up an excellent reputation in the marketplace, such that any buyer would benefit from its acquisition. It may have a management team of real calibre who can dovetail into the Acquirer's team to the ultimate benefit of all concerned, as well as contracts which fit comfortably within the current portfolio of the Acquirer.

Identifying the target
So how does an Acquirer go about identifying the right target? The purchaser will most likely have knowledge of the market, but this in itself can be dangerous. Commentators in the security sector are forthright in their views as to which security companies are bad and which are good... Views often based on the flimsiest of evidence. We strongly recommend that the Acquirer engage an independent body to carry out an Operational Due Diligence of the Acquiree Company. It's not costly, and could be money well spent.

Carried out in the strictest confidence, the Operational Due Diligence Team will focus on the performance of the Acquiree Company on all its major contracts, in addition to sample testing on some of the minor ones. The Team can also make a valuable contribution in assessing the quality of the individual operational management which is destined to be transferred. Ultimately, it can make a realistic recommendation on what is a fair price. On too many occasions have Acquirers bought companies in a hurry, and then lived to regret the decision.

The Acquiree has spent years building up the business, and now wants to realise all the effort involved in doing so. The secret, of course, is finding the right buyer in the right place at the right time. No easy task, and luck certainly plays its part. It's perfectly possible for the Acquiree to find a 'target' that's prepared to pay as much as 40 pence in the pound based on annual permanent turnover, only to discover that three months later the same target will only offer 25 pence (and, within that, include an element of deferred consideration to boot).

It's a matter of timing. Again, the Acquiree Company cannot afford to tout its business around, so it's wise to engage an independent who knows the market intimately, can profile the potential Acquirer and draw a modest fee for bringing the two parties together.

The Operational Due Diligence Team can make a valuable contribution in assessing the quality of the operational management destined to be transferred. Ultimately, it can make a realistic recommendation on what is a fair price

As the potential acquisition turns into a deal, so the views of both sets of clients become critical (most particularly those of the Acquiree Company). We have to remember that these clients originally selected the services of the Acquiree Company for very good reasons, so it becomes a major exercise in convincing everyone that the service will not only be maintained but also improved upon.

Communicate, communicate
In my view continuous communication is the only method, combined with an intensive programme of visits to reassure the new clients. It may seem obvious, but the clients in the portfolio of the Acquirer need extra attention as well at this time since (as previously mentioned) some may well feel that this is the last straw and seek an alternative security company to guard their site(s).

Many people are going to be affected by the acquisition, particularly those within the Acquiree's team. In order to make the acquisition cost effective there are inevitably going to be redundancies. While the Finance and Support Services Teams are obviously at greatest risk, this could easily extend to some members of the Operations Team. It's extremely important that, in selecting these individuals, the advice of the senior management of the Acquiree Company is fully considered as well as any independent who has been involved in the process.

A final word about redundancy, since this is an area in which (generally speaking) our industry does not enjoy a particularly good track record. Quite simply, if you provide a robust counselling service and try to help those unfortunate individuals, then they'll remember this long after you have forgotten about it. In a few years' time, they might resurface as the senior security manager of a potential client. At that point, you'll be grateful you treated them with compassion when it mattered most.

Watch existing contracts!
A word or two also concerning price (although it's not the remit of this article to discuss in detail the various options). The Acquirer is likely to wish to put in place an offer which involves deferred consideration, particularly if they wish to retain – in whatever guise – the services of the owner being bought out. Conversely, the senior management of the Acquiree may want to break all links with the company and the industry at large, and seek a one-off settlement.

In such cases, it's important that the Acquirer is protected from the owners of the Acquiree company slipping immediately back into the industry and trying to take back the existing contracts. It has happened before!

At the end of the day, independent advice should be sought on the right target for both parties involved. Conduct an Operational Due Diligence prior to the acquisition. Advise the client base of both parties as soon as possible, and keep them fully briefed as and when developments occur. Don't forget to offer an effective consultancy service for those who are going to be made redundant.