YARMOUTH, Maine—One of the best ways for security companies to build density is to acquire a local competitor, but there also are potential pitfalls when doing business in your backyard, according to five security company executives who have experience with these kinds of transactions.
John Jennings, president of Scottsdale, Ariz.-based Safeguard Security; Pat Egan, president of Lancaster, Pa.-based Select Security; John Loud, president of LOUD Security Systems, based in Kennesaw, Ga.; David Goldstein, president of Guardian Alarm in Detroit; and John Cerasuolo, CEO of ADS Security, based in Nashville, spoke to Security Systems News about best practices for acquiring neighboring businesses.
For ADS, that TLC starts well before any acquisition activity.
He said that ADS has a proactive program where they reach out to competitors so they get to know ADS.
And you enlist the seller in announcing deals to customers. Letters are sent out to customers from the seller and new owner, explaining that this deal will be beneficial to the customer and that the former owner made the decision to sell to this particular company.
Goldstein, of Guardian Alarm, said that welcoming the new customers is a "driven campaign that goes on for four to six months." Guardian sends a series of letters, starting with a welcome letter, and 60 days later Guardian may send a letter offering that customer an opportunity to use an automatic payment feature. Other offers follow. "They hear from us so often, they believe their security company has always been Guardian," Goldstein said.
Loud hand signs every letter that goes out to new customers and includes his cell phone number.
Loud also rolls a truck out to every new account he acquires. It's an expensive practice, but one that pays dividends, he said. During that visit, the LOUD technician updates the emergency contact list, recertifies the system, and walks through the operation of the system with the customer.
This ensures the alarm system is in good working order and that the customer's billing and monitoring information is correct and up to date. It's also an ideal time "to sell add-ons, whether that's cellular or interactive services, or a maintenance plan. At the very least, they may want us to replace a battery," Loud explained.
The personal visit is an opportunity for the new customer to get to know LOUD Security. It may have been several years since the former company was in touch with the customer. "The goal is to keep attrition down," Loud said, and the visit is one way to do that.
LOUD said he figures the cost of that visit into the purchase price. "We equate it to a four multiple," he said.
Loud pointed out that sellers are interested in assisting with the transition, because they must typically guarantee all accounts for 12 months after the deal closes.
For important accounts, it's often a good idea for the seller and buyer to visit those customers before the deal is announced.
While a local competitor is generally selling because the owner wants to retire, there are other situations—death of an owner or an owner who is terminally ill, for example—that need to be handled delicately.
Other situations also warrant caution on the buyer's part.
Understanding the employees is "very, very important, and more so if you're buying the guy next door," Egan said. You want to know if an employee or an owner intends to go out and start a competing company and whether non-compete agreements are in place.