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20 Market trends www.securitysystemsnews.com August 2013 sECuRItY sYstEMs NEWs Acquiring thy neighbor? Doing your due diligence W O Best practices on buying a local competitor, according to Jennings, egan, Loud, Goldstein and Cerasuolo By Martha Entwistle what kind of company we are, how we treat our customers and employees, [and] that companies to build density is to we're aggressively growing." acquire a local competitor, but once an acquisition is completed, nomenthere also are potential pitfalls when doing clature matters. When you buy a direct business in your backyard, according to competitor, it's best to announce the deal to fve security executives who have experi- customers as a merger rather than acquisience with these kinds of transactions. tion. "We'll announce it to the customers as John Jennings, president of a merger of two assets," egan said. Scottsdale, Ariz.-based Safeguard "You don't want to make it sound like Security; Patrick egan, president you're superior over another." of Lancaster, Pa.-based Select Jennings pointed out that "cusSecurity; John Loud, president of tomers don't like to be acquired." LoUD Security Systems, based in And you enlist the seller in Kennesaw, Ga.; David Goldstein, announcing deals to customers. Letpresident of Guardian Alarm in ters are sent out to customers from Detroit; and John Cerasuolo, the seller and new owner, explaining Ceo of ADS Security, based in John Jennings that this deal will be benefcial to the nashville, spoke to Security Systems News customer and that the former owner made the about best practices for acquiring neighbor- decision to sell to this particular company. ing businesses. Goldstein, of Guardian Alarm, said that There was some difference of opinion— welcoming the new customers is a "drivparticularly on the question of when to en campaign that goes on for four to six rebrand an acquired company—but all agreed months." Guardian sends a series of letters, that, as egan put it, "you need a little extra starting with a welcome letter, and 60 days TLC when you're dealing with a guy in your later Guardian may send backyard." a letter offering that cusfor ADS, that TLC starts well before any tomer an opportunity to acquisition activity. Be a good neighbor, says use an automatic payADS' John Cerasuolo. "It's very important that ment feature. other offers your company behave in an ethical way and follow. "They hear from have a good relationship with competitors." us so often, they believe He said ADS has a proactive program to their security company reach out to competitors so they get to know has always been GuardADS. "We're competitors, but there's no rea- Patrick Egan ian," Goldstein said. son we can't have a trusting, respectful relaJohn Loud said the initionship," he said. tial customer letter may "also makes the case In addition to good business relationships, that the seller chose to sell to another local he said, this goodwill "sets the stage, so that if company, not a larger regional or national they're ever thinking about selling they know brand." ne of the best ways for security Need Power? Think GlobTek Green Power Supplies Meet Efficiency Level V Requirements 90W Desktop style Power Supplies with IEC 60320/ C6, C8 or C14 inlets have Double-Enforced Insulation Mechanical Configurations, Regulated Outputs voltage from: 12 to 48Vdc in 0.1V increments, up to 90W of continuous output power. GlobTek's GT-41133 series of enclosed power supplies are housed in Impact Resistant non-vented Polycarbonate Case, Thermal Conduction Cooling, Case Dimensions: 62 x 150 x 34 (mm). 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Aside from safety, the charger includes many features to maintain and lengthen battery life. ...for more click www.globtek.com www.globtek.com By Martha Entwistle Hen A bank considers making to the next level." a loan to a security company When a security company wants to it goes through a standard due acquire another company, Holloway said diligence process, so if you're a secu- that "for the best results, companies create rity company looking to acquire a com- processes around acquisitions so they don't petitor, "you should look for the make the same mistakes [they may same things that we look for in have made] last time." your business," according to She outlined the acquisition Jennifer Holloway, managing process: Identify targets; screen director in the Security Industargets; go through the due try Group at The PrivateBank. diligence process; negotiate the The PrivateBank looks at deal; make the acquisition itself; these seven elements: RMR, integrate the new accounts and attrition rate, cash flow, creemployees; and fnalize the settleation costs, contracts, informa- J. Holloway ment of the deal. tion systems, fnancial reporting, The most important part of the and management. RMR "is treated as col- process, she said, is to protect the reputalateral" for the loan, Holloway said. tion of your company by "doing the right When looking at cash fow, The Private- thing." When companies "treat [sellers] Bank wants to know that a company can fairly in the last acquisition, that will pay repay a loan, or at least the interest on the dividends in the next one," Holloway said. loan." And when it examines the manageon the other hand, she warned, "if you ment it's looking to see if "it's proven, if burn bridges, no one will want to sell you there's suffcient depth in the team to get anything." SSN Loud hand signs every letter that goes out other situations—death to new customers and includes his cell phone of an owner or an owner number. He also rolls a truck out to every who is terminally ill, for new account he acquires. It's an expensive example—that need to practice, but one that pays dividends, he be handled delicately. said. During that visit, a technician updates other situations also the emergency contact list, recertifes the sys- warrant caution on the tem, and walks through the system's opera- buyer's part. tion with the customer. Understanding the J. Cerasuolo This ensures the system is in good work- employees is "very, very ing order and that the customer's billing and important, and more so if you're buying the monitoring information is correct and up to guy next door," egan said. You want to know date. It's also an ideal time "to sell add-ons, if an employee or an owner intends to go out whether that's cellular or interactive services, and start a competing company and whether or a maintenance plan. At the very least, they non-compete agreements are in place. may want us to replace a battery," Loud said. John Jennings put it this way: "You need to The personal visit is an understand the end-game of the person you're opportunity for the new acquiring." customer to get to know All said that they generally try to hire LoUD Security and to employees of the former owner, but they keep attrition down. It had different opinions about when to rebrand may have been several an acquired company. "I don't make global years since the former changes [immediately] after closing," egan company was in touch said. "I'll use their name for a while. We'll with the customer. answer the phones as ABC Alarm for a while, Loud fgures the visit's then it becomes ABC Alarm/Select Security, John Loud cost into the purchase then eventually it becomes all Select Security." price. "We equate it to a four multiple." Jennings and Loud, on the other hand, said He pointed out that sellers are interested they will rebrand an acquired local competiin assisting with the transition, because they tor immediately. "We try to make them our must typically guarantee all accounts for 12 customer as quickly as possible. I want them months after the deal closes. to know they're dealing with Safeguard," Jenfor important accounts, it's often nings said. He said that his brand is a good idea for the seller and buyer very strong in the Scottsdale, Ariz. to visit those customers before the area and "we want customers to deal is announced. see that they're dealing with a betegan said he bought one comter company." pany and two large customers were The exception would be if he not interested in becoming Select acquired a company outside of his Security customers. "I went out general area. "If I went to another with the seller, met the people," he city, I would probably keep [the said. "We assured them that all the D. Goldstein seller's] brand, because his brand staff [of the acquired company] were com- would probably be stronger than mine in a ing on board, that nothing [in the agreement different market." would be disturbed] and that that monitorWhether you rebrand or not, there's one ing would change for the better. Today, those golden rule of acquiring thy neighbor, accordcustomers are still ours." ing to egan. "Treat them right," he said. "If While a local competitor is generally selling you don't it'll be your last deal in this indusbecause the owner wants to retire, there are try." SSN