News Poll: M&A activity stays strong in 2019

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Wednesday, October 30, 2019

YARMOUTH, Maine—Over the last few years, Security Systems News has covered hundreds of mergers and acquisitions, and it seems M&A in the security industry is still as hot as ever. In this month’s News Poll we asked our readers for their thoughts about M&A in our industry.

When comparing 2019 to 2018, more than half (54 percent) said M&A activity was about the same, with 31 percent saying they felt like there was more activity this year, and 15 percent saying there was less activity this year.

“The M&A market is very, very active this year,” said Barry Epstein, president, Vertex Capital Corp. “Integrators are in high demand and alarm companies are trading hands at a very strong pace. Most of the buyers on the medium to large deals are private equity backed platform companies. There are many new entrants into the market, from manufacturers to industry agnostic buyers to foreign buyers wanting a new market. With all the dollars waiting to be invested, those with strong companies will have lots of great options to sift through.”

Asked if 2019 is a good year to sell, 42 percent said, “Yes, multiples are still very high,” and 38 percent said, “Yes, but not as good as past years,” while 19 percent said, “the number of buyers is shrinking.

“Downward pricing pressure will continue as DIY and MSOs continue to influence the market with low cost, no contract offers,” one respondent noted. “Interactive technologies will also erode earnings as it costs more to support customers with this technology in warranty, support and user education cost. Not sure why the 3G/4G sunset has not been factored in to the value of companies. This will be a huge expense for most companies that will need to be factored in for the next 24 months.”

DFW Security President Marty J. Marlow made an interesting correlation between the prices for multiples and which administration was in control. “Prices began rising during the last part of the Bush administration and soared back into the 50's and 60's again under the Obama administration,” she explained. “Here we are, Trump is president, again with prices in the mid 30's to low 40's for entire companies. Banks are a bit nervous about some of the big boys and their troubles and low valuations. However, if you run a clean business and provide quality service and installs, there is always smart money looking for smart operators. This is a time of culling out the riff raff in our industry.”

When asked how often does your company acquire new companies, 50 percent of respondents said hardly ever, with 38 percent saying occasionally and, interestingly, just 12 percent saying often.