This article was written by Daphne Tomlinson, Independent Senior Research Associate at Memoori.
Private equity firms are ramping up their investments in middle market companies in the North American fire and security systems market. Although PE funding has declined for the leading physical security manufacturers, according to the latest Memoori report on the Security industry, private equity continues to act as a key driver of growth and consolidation in the fragmented commercial security and life safety systems integration and services sector.
Through a Buy & Build strategy, private investors are acquiring platform companies, which form the basis for executing further add-on acquisitions that fuel revenue growth, optimize operations, and significantly increase equity value. Companies being targeted generally have revenues in the range of $15 – $100 million. Investors are targeting the fire and security services market as it is large, stable and benefiting from critical infrastructure spending and high growth forecasts.
We have already seen five PE backed acquisitions in the region in January 2018.
- Red Hawk Fire & Security acquired two companies to build upon its capabilities in the special hazard fire suppression business and the integrated security services arena. In separate transactions, Red Hawk announced the purchase of Anaheim, California-based Diversified Protection Systems, Inc., and ATCi Communications, Inc., headquartered in Miami, Florida. The two purchases represent Red Hawk’s fifth and sixth acquisitions in the last 20 months as the company continues to grow both organically and through strategically aligned acquisitions. Red Hawk was formed as an independent, fire and electronic security services brand with a national footprint to serve commercial customers after the acquisition by Comvest Partners of the U.S. fire and security branch operations of United Technologies Corporation (UTC) in April 2012. At the time, estimated revenues of the divestments were $250 million. Red Hawk is now ranked No. 3 for non-residential revenue in the latest SDM 100 listing of companies in the industry and No. 7 for total revenue at just under $300 million.
- In Canada, Mill Street & Co. completed an equity investment in DFENDUS Security Solutions Inc. and closed the company’s first acquisition of Inforce Security Corp. DFENDUS was founded in 2017 by security industry veteran Dan Marston, formerly Sr. Director and General Manager of Securitas Canada. The firm’s immediate focus will be on acquiring mid-market companies. Marston says he is planning another 3 to 5 acquisitions in the first half of 2018 to provide additional critical mass for Dfendus.
- Summit Companies, backed by CI Capital Partners acquired Alliance Fire Protection, establishing a regional presence in Arizona. Alliance designs, engineers and installs commercial, industrial and multi-family residential fire protection systems for new construction projects and renovations and provides ongoing maintenance and inspection services of these systems.
- Fire and Life Safety America (FLSA), backed by Blue Point Capital Partners, announced the acquisition of Integrated Fire Protection a service-focused provider of fire and life safety solutions, headquartered in Norcross, Georgia. This transaction represents the first add-on acquisition for FLSA since Blue Point acquired the platform investment in February 2017.
Notable deals last year were ADT's strategic acquisitions of 3 North American systems integrators, as it builds up its commercial integrated solutions business, prior to its IPO announced in December 2017. Backed by Apollo Global Management, ADT acquired Protec in Aug 2017; MSE Corporate Security, the 27th largest commercial security integrator with $24.8 million North American systems integration revenues in 2016; and Gaston Security in October 2017.
The most aggressive acquiror is KRG Capital Partners backed Convergint Technologies with 19 acquisitions since August 2012, 14 of which were undertaken in the last two years. On 2nd February 2018, KRG announced that they had sold the business to a fund managed the private equity group of Ares Management.
Convergint Technologies has been targeting companies which design, install, and service electronic security, fire alarm, and life safety systems, as well as HVAC / building automation systems integrators. It has also acquired companies in Europe and China, as well as its core North American market.
The company has more than 2,000 employees and the co-founder, Dan Moceri, projected 2017 revenues upwards of $750 million in July last year, with Convergint’s enterprise security business in the North American federal and state government sector exceeding $100 million.
“Convergint’s meteoric growth and success is no accident. In a relatively short period of time, it has become one of the most successful and reputable companies in our industry,” Bill Keller, president of SigNet Technologies, said after his company was acquired by Convergint in July 2017.
Convergint is expected to be the first PE backed fire and security systems integrator to reach $1 billion sales in the next 3 years, at its current rate of expansion. The company is particularly well placed to challenge the leading players in this sector – Johnson Controls, Siemens and Honeywell.
Other platform companies seeking acquisitions in this sector include Securadyne (backed by Pamlico Capital), Sciens Building Solutions (backed by Huron Capital), Academy Fire (backed by Audax Private Equity) and ISA Fire & Security (backed by Align Capital Partners). Consolidation is set to continue over the next twelve months.
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