By now most of my readers should assume that if deals can close throughout the pandemic then there is almost nothing that can stop deals from closing.
It is true that deals continued to happen all across the security industry in 2022. It is good news that people, capital and companies continue to want to invest in the security industry and that most parts of our industry are showing growth. We should be thankful for both of these facts.
My own brokerage business and my reading suggests that the alarm and guard sectors appeared to be the busiest for deals in Canada this past year.
The alarm industry
Aside from the bread and butter smaller deals that happen year in and year out, there were some larger deals done in 2022. Telus bought Vivint’s large block of accounts in Canada. Like the ADT Canada-Telus deal, which closed in 2019, this is another example of a large U.S. player selling their Canadian operations to a Canadian company.
Carrier Global Corp. sold Chubb Fire and Security worldwide operations to APi Group Corp. based in Minnesota.
Securitas, originally known as a worldwide guard company, bought Stanley’s electronic security business. GardaWorld, based in Montreal, and also originally a guard company, bought Liberty Security based in Edmonton to establish a base in the electronic side of the industry outside Quebec. Finally, AvantGuard, part of the U.S.-based Becklar company, bought Armstrong’s National Alarm Monitoring based in the Maritimes in a move to expand their wholesale operations across North America.
During 2022, the blocks of alarm accounts between 1,000 and 5,000 in Canada were almost all done by the usual buyers in the Canadian alarm industry: Telus, a.p.i., Securex Financial and SecurTek. Mostly these blocks came up for sale because the owners wanted to retire. This baby boom retirement trend will continue in 2023. It is only when we get down to the smaller blocks, 100-500 accounts, that regional and smaller players within the alarm industry show up as buyers.
It is noteworthy that the vast majority of alarm deals done over the last 10 years in Canada regardless of size have been done by what we call “strategic” buyers as opposed to “financial” buyers like private equity or private investors. Sellers should note this. Strategic buyers are larger players in the same industry and they are generally doing what they call “tuck-in acquisitions.”
Very little private equity or family office money bought into the alarm industry in the last year. The alarm industry is lucky to have these larger strategic buyers because they often pay more than private equity, they generally have lines of credit already set up and most importantly they have experience in doing deals. It is always easier doing a deal with an experienced buyer.
There is no doubt that the mover and shaker in the alarm industry in Canada these days is Telus. The other buyers are having to up their game or simply not get any deals done. As a result of all this, if you have more than 300 accounts, I would argue this is a very good time in Canada to be selling! Who knows how long these higher multiples will last.
What about this year? Even with interest rates climbing in 2023 and Canada being threatened with a small recession, I don’t see any of this buying activity slowing up.
The guarding industry
The reasons for the sale of guard companies vary but the issue of finding and replacing guards to fill contracts is greater today with the labour market being as tight as it is. The annual turnover in the guarding industry is always high but today employers are having to work harder and pay more per hour to find entry-level guards. Also, there is the issue of raising your prices on the customer side to keep up with the rising cost of labour.
The good news is that there is a handful of larger guarding companies in Canada looking to acquire other guarding companies. There are economies of scale in the guarding industry plus the opportunity to acquire regional or national accounts as customers if you can show that you have the ability to handle the business.
The largest deal in the guarding industry worldwide was the Allied Universal deal to buy G4S including its operations in Canada. This potentially adds Allied Universal to the list of potential buyers in the future in Canada. Closer to home, SSC Security Services out of Saskatchewan bought the guarding side of Avante Logixx, called Logixx Security, to establish itself as a major player in the industry and someone to watch. (I personally like the messages coming from their CEO.) Much like on the alarm side, most of the deals in the guarding industry are being done as strategic buys by larger players in the industry.
My sense is that to be attractive to the big, national buyers on the guard side you have to have to be doing almost $10 million in annual revenue. There are other industry players looking to buy the smaller guard companies ($2- $7 million) as well but I have found there are a lot of “tire kickers” in this space.
Guard deals take longer to complete than alarm deals and deals being done by buyers new to acquisitions will take longer to do. I sense there is more turmoil in the guard space and I think 2023 will see several sellers in the market and buyers there to snap them up.
Overall, most sectors in the security industry have been quite resilient over the last few difficult years. Although 2022 was somewhat slower than 2021, there were still lots of deals done. I don’t see that changing much in 2023.
Victor Harding is the principal of Harding Security Services (victor@hardingsecurity.ca).
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