M&A and your company

PSA-TEC sessions look at measuring a company's growth and prospects for exiting this year
 - 
Wednesday, May 23, 2012

WESTMINSTER, Colo.—Thinking about selling your systems integration company this year? What kind of price can you expect for your business? More than one session during the annual PSA-TEC conference, held here May 14-18, took a hard look at how integrators should assess their organic growth and set realistic expectations for sales prices.

On the question of growth, Bill Bozeman, CEO of PSA Security, noted that international events absolutely can affect progress for a systems integration business.

He estimated that the average integrator should grow 5 percent in 2013, not including growth from acquisitions.

“If you’re doing 10 to 15 percent growth and you’re not a new company, you are a superstar,” Bozeman said. “If you’re totally flat, there’s no growth, something is probably wrong.”

During an M&A educational session, panelists agreed that there is a lot of M&A activity out there and some of the multiples being paid are attractive for sellers.

“We’ve seen deals [recently] going for three and four times EBITDA,” said Jeff Kessler of Imperial Capital. “And in the second half of the year you’re going to see double-digits, multiples that will make your eyes pop out.”

But, Kessler added, those high multiples will not be for everyone. You’re better positioned if your business’s focus fills a void for an acquiring company. Kessler noted that Henry Brothers brought Kratos a “backlog in defense projects.” Westec brought important video capabilities, and Niscayah brought Stanley vertical market expertise in finance and retail.

“Niscayah filled a hole, vertical markets Stanley absolutely couldn’t break into,” Kessler said.

Value will also depend on how you’ve “future-proofed” your company, he said. He advised integrators to offer “all kinds of [hosted and managed] services … not just security, but data.”

Fears that the capital gains tax will increase after Jan. 1, 2013 are bringing the sellers out and adding to the M&A frenzy, said Barry Epstein of Vertex Capital.

In general there are fewer bidders for systems integrators than alarm companies, Epstein said. “On the integrators’ side, it’s more of a buyer’s market, but it’s still an active market,” he said.

Discussion also focused on a question that buyers ask themselves about smaller companies, whether they’re systems integrators or alarm companies: “Is the owner the revenue stream?” Sellers need to be able to show that sales and growth can be sustained by the organization once he or she exits.

Epstein and Kessler noted that there is lots of private equity money looking for a home, but they warned sellers to beware of selling entirely based on price. They said that PE players are offering some attractive multiples, but companies should take a very close look at terms.

Les Gold, an attorney with Mitchell Silberberg & Knupp, advised integrators to find someone who has expertise in the security industry to broker their sales. He added that it’s difficult to give sellers guidelines on what a company is worth. “It really depends on what someone is willing to pay,” he said.