Based on my canvassing of security dealers, it appears most parts of the industry will be hit from the COVID-19 shut-down. This is despite security being declared an essential service. People I talked to said this year’s revenue will be down anywhere from 15-35 per cent.
Residential service and installs in the alarm industry are virtually dead. Nobody wants anybody in their homes. Remote technical work is still being done where required and possible. Alarm.com panels shine in these times. Regarding their monitored accounts, most dealers have experienced a sizeable increase in calls from customers asking for extra time to pay and a general slowdown in payments for monitoring.
Interestingly enough, those with customers on pre-authorized payment (PAP) are not being affected as much — something to note for the future. Some are reporting a small increase in cancellations, partly because customers are at home and don’t need the system as much, and partly for financial reasons.
Residential door-knockers have really been hit hard. One door-knocker I talked to said he had done 20 installs in a period where he would normally do 120. Over the next 4-5 months he thinks he will lose 600-700 new installs. The next few months — April to October — are the prime time for door-knocking. The call centres, which provide leads to some of these door knockers, are for the most part shut down.
Some residential dealers will use the federal government’s CEWS wage supplement program to keep some staff in place. Others will attempt to get government-backed loans. Others will just have their employees go on EI.
Integrators that generally rely on doing larger commercial jobs and have been hit hard as well. Essential service work is getting done with extra costs for the technicians working under COVID-19 conditions. Almost all new business has dried up. An integrator I talked to in Canada says his revenue in this fiscal year will be down 30-40 per cent.
On the positive side, at least there is some commercial work being done, unlike with residential. Also, apparently, there has been an increase in break-ins to commercial spaces which may create some new business.
Monitoring stations have had to incur the expense of setting up the majority of their employees to work from home — which is not a bad thing for the future but a considerable expense.
The problem for stations is they will not likely see the necessary immediate drop in revenue (30 per cent) to qualify for the CEWS program. It will likely be three to six months before they see the effects.
Fire services have been deemed an essential service too, but they have also struggled. The ones I talked to have laid off a high percentage of staff. Fire dealers are sending techs out when they are absolutely called upon to do so. But fire installation jobs have, for the most part, ceased completely while the annual test and inspections have merely been put on hold.
With the guard business, business conditions are a mixed bag. With so many businesses shut down, any guards attached to these businesses are not working.
On the other hand, drug stores and grocery stores have mostly hired new guards to control the traffic going into the store and inside the store. A lot of this new extra work for guard companies is coming at higher than normal rates.
For all those security businesses that have been really hurt, owners have cut back expenses to the bare minimum and perhaps for the first time are doing some short term cash flow forecasting.
Deals and values
Valuations and deals will be affected negatively by the virus shut-down as well.
On a macro level, we have entered into a time of increased financial risk. Increased risk usually translates into lower valuations, less capital being made available and more expensive when it is offered, larger hold backs and perhaps longer pay-outs from buyers.
On the flip side, as the virus shut-down has the opportunity to do more damage, there will be those who may have to sell or those who just think they have had enough. Well-financed buyers may be able to pick up some deals, although my guess is that the sellers here will be smaller players and maybe more alarm and guard companies than integrators or fire companies.
Although some deals are still closing, others have been delayed and others simply cancelled altogether. Offers I have seen coming in for alarm accounts are coming with bigger holdbacks. Buyers are worried about increased cancellations. I have read the immediate future bodes better for smaller “tuck-in” deals than for the larger “platform” deals, which makes sense to me.
Most companies will go through a period of lower or much lower revenues for the next year, which will make it problematic for those wanting to sell after the shut-down is over. Buyers usually look carefully at the “trailing 12 months earnings.” This will force sellers to delay their plans to sell for at least a year or more.
Overall my information is that despite being an essential industry, the security industry, like so many others, has been hit hard and that it will take more than a year for most to recover.
Victor Harding is the principal of Harding Security Services (victor@hardingsecurity.ca).
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