G4S buys Adesta

PALM BEACH GARDENS, Fla.—G4S announced this week a signed purchase agreement with private equity firm McCarthy Group and company management to acquire systems integrator Adesta, based in Omaha, Neb. The purchase price was announced as $66 million. Adesta had revenues of $92 million in 2008.

Bob Sommerfeld, president of Adesta, said he and the rest of the management team would remain with the company, and reported being excited about the prospect of leveraging G4S's considerable girth.

“Two markets that G4 has talked about having particular interest in are seaports and petrochem,” Sommerfeld said, “and those are both markets that we have some reputation and penetration in, so I think we bring some positives there. And I think part of their strategy is to grow their U.S.-based technology business and we provide a good footprint for that.” Adesta has notably helped secure the Port of Long Beach and recently opened a Houston office to better serve its petrochem customers based in the Gulf.

Sommerfeld also noted that Touchcom, the integrator G4S purchased in 2008, is primarily in the commercial building management side of security and that “isn't a space we're particularly active in, so we don't compete there. We're additive to that part.”

At the recent ASIS International show in Anaheim, Calif., G4S president Drew Levine said it was the company's goal to integrate its technology offerings with its manned guarding services to better serve customers. “There's a huge space between an integrator like ADT and most manned guarding companies,” he said at the time, “and G4S has closed that gap.” The Adesta buy would seem to strengthen the company's technology integration efforts while giving the company more installations with which to leverage its newly opened central monitoring center.

Sommerfeld said Adesta and G4S have been in communication since before ASIS International 2008. “We were talking about a strategy that looked toward a total solution,” he said. “That's where the conversation started. This summer, we started having more conversations about an acquisition.”

As for the purchase price, “this is a strategic acquisition for [G4S],” Sommerfeld said, “so I'm not sure either party was dealing strictly from multiples. It was more of a strategic fit and the potential of it going forward basis.” Sommerfeld said Adesta has about 10 to 15 percent of its business in recurring revenue, and admitted that, “generically, anybody that has more recurring revenue, the better the multiple they're going to get.” The G4S deal ought to help Adesta focus on that, but Sommerfeld said recurring business is a “strategic focal point” already, and the company “always looks for opportunities to develop follow-on contracts.”

Using back-of-the-envelope math, taking the 10 percent figure, Adesta would have something like $766,666 in RMR, and G4S would have paid something like an 86x multiple for that recurring monthly revenue. “There's a lot of people paying a lot of attention to recurring revenue,” Sommerfeld allowed, “and there's a bunch of buzz around that.”

However, it's likely Adesta's impressive performance during tough economic times that attracted G4S and added to the purchase price. Sommerfeld said that, despite a poor first quarter, he expects to finish 2009 10 percent up over 2008, and the second and third quarters represented record revenue for Adesta. The company has recently added roughly 30 employees and sits at around 430 right now, Sommerfeld said.

“We've been in some of the right markets in terms of the government-type, local/state-level, quasi-governmental markets—they've held up pretty good relative to some other markets,” Sommerfeld said, helping to explain the company's resilience in the poor U.S. economy. He also noted that Adesta tends to only engage in larger jobs that tend to cross over multiple years. He said the company already has 50 percent of its 2010 business booked.

“There's more risk in it,” he acknowledged, “but we're not reliant on a whole bunch of deals, just a precise number of good large ones ... And we've got good backlog. We're forecasting growth for next year, too.”