Doing your due diligence
YARMOUTH, Maine—When a bank considers making a loan to a security company it goes through a standard due diligence process, so if you’re a security company looking to acquire a competitor, “you should look for the same things that we look for in your business,” according to Jennifer Holloway, managing director in the Security Industry Group at The PrivateBank.
Holloway's remarks were part of a presentation she gave during an educational session she participated in with Security Systems News at the ESX security show in June. The PrivateBank looks at these seven elements: RMR, attrition rate, cash flow, creation costs, contracts, information systems, financial reporting, and management.
RMR “is treated as collateral” for the loan, Holloway said.
When examines the managment of a security team, it’s looking to see if “it’s proven, if there’s sufficient depth in the team to get to the next level.”
When a security company wants to acquire another company, Holloway said that “for the best results, companies create processes around acquisitions so they don’t make the same mistakes [they may have made] last time.”
She outlined the acquisition process: Identify targets; screen targets; go through the due diligence process; negotiate the deal; make the acquisition itself; integrate the new accounts and employees; and finalize the settlement of the deal.
Depending on a company’s scale, and the number of acquisitions it intends to make, “some companies create a due diligence team” she said.
The most important part of the process, she said, is to protect the reputation of your company by “doing the right thing.”
When companies “treat [sellers] fairly in the last acquisition, that will pay dividends in the next one,” Holloway said.
On the other hand, she warned, “if you burn bridges, no one will want to sell you anything.”