Newsletter Fall 2014

Attention: Alarm, Integration, Fire, Guard and Locksmith Dealers in Canada

Attention: Compagnies D’alarme, Intégration, Feu, et Garde de Securité au Canada

Harding Security Services Inc (HSSI) – What we do!

Our mission is to service the security industry in Canada - alarm, integration, fire, guard and locksmith companies - with the best possible advice in 3 major areas. Our primary focus is to act as an intermediary to help owners of security companies wanting to sell their businesses. Connected to this, we also do valuations of security companies. Thirdly we provide consulting advice to companies on authorized dealer programs in the security alarm field.

Service De Securité Harding Inc. (HSSI) – Que faisons nous!

Notre mission est de servir l’industrie de la sécurité au Canada, – incluant Alarme, Intégration, Feu, Garde de sécurité et serruriers.– avec notre savoir faire dans les 3 spheres majeures de l’industrie. Notre but premier est de pouvoir aider en tant que intermédiaire pour pour les propriétaire d’entreprise voulant vendre leur entreprises. Suite a cette démarche, Avec cela nous pouvons établir l’évaluation de votre entreprise. Troisièmement nous vous aidons a devenir mandataire ou partennaire suite a la vente de votre entreprise.

DONE DEALS WITH HSSI

• In Dec/13, we sold 9600 alarm accounts based in Burnaby BC in an asset sale. The sale generated well over $10 million.
• From January to March of 2014, we were involved in valuations of 3 different medium-sized alarm companies.
• In March/14, we were involved in the sale of a small ULC-approved monitored station in the Toronto area.
• In June/14, we sold the shares of a small integration company based in Mississauga On. We got value for both the monitored accounts and the installation and service revenue. The Seller is now working for the Buyer.
• In July/14, we sold 700 monitored accounts in an asset sale for 30X in Montreal. The Seller is now an authorized dealer of the Buyer.
• In Aug/14, we sold 470 monitored accounts in an asset sale in the east end of Toronto for 35X. We are working on selling the rest of that company right now.
• In Sept 2014, in Edmonton, the sale of a fire services company that we had been working on was closed in a share sale for about 4X EBITDA.
• In Oct/14 we finalized a deal for the sale of 225 monitored accounts in Vaughan On for a multiple in the 30’s.

DEALS IN THE WORKS

• An alarm and camera company based in Vaughan On has just sold its accounts but wants now to sell the rest of its business- its telephone number, retail space and website – for a nominal amount.
• A small, but fast-growing integration company based in Richmond Hill Ontario with 380 monitored accounts and doing $550,000 of revenue. Share sale preferred. 3 employees.
• We are selling the key telephone number and the opportunity to service the accounts of a small alarm company in the east end of Toronto whose 460 accounts we just sold. See above. The telephone number generated $175,000 of installation and service last year. The servicing of the accounts comes with a monthly residual to be paid to the winning bidder.
• A well-known, well established, profitable fire services company based in Victoria BC doing about $1,000,000 in revenue annually. 4 techs, 2 clerical, 1 GM.
• A very profitable fire and security company based in Calgary. Does approx $4 million in revenue annually and returns better than 20% of sales in profits.
• A well-known, successful security company with a very strong brand and 3400 monitored accounts located in Ontario. Owner is looking for a share sale and a buyer who will leave the organization in place.
• We have a ULC- approved monitoring station for sale based outside Toronto. The owners are looking for a premium price to compensate them for the unique services this station offers.
• We have 450 monitored accounts in the GTA area to be sold in an asset sale.

Developments in the Acquisition Market in the Security Industry in Canada

There appears to be more activity on the M&A side of the security industry now than a year ago. This is partly a function of better economic times. Buyers are more active when times are better. It could also be that owners are realizing that there is a broker in the market that focuses on the security industry. Selling your business on your own is daunting! Finally there are owners now in their late 50’s and 60’s who have been managing their businesses now for 20 years or more, without much of a break. In simple terms the “baby boom” generation is starting to retire.

On the alarm side, it seems like prices or multiples for accounts have also gone up from 12-24 months ago. This could be the result of bigger buyers being given the leeway to be more aggressive. Having said this, we could use more buyers in Canada. Our banks are at fault here because they don’t lend to small and mid-sized players based on RMR. In addition some of the bigger buyers from the past have disappeared. VOXCOM and Microtec have both been bought out and Protectron and ADT have merged. Countering this trend, there are some Private Equity players starting to sniff around again looking for alarm “platforms” to buy in Canada.

Elsewhere I have written that there are more small “integration” companies putting themselves up for sale. I use the term “integration” to refer to those companies where the bulk of their revenues come from installation and service of more complex security systems. Selling one-time installation and service revenue is a lot tougher than selling RMR but it can be done. The national alarm players are only interested in the integrator’s accounts. Buyers for these companies have to be found among other small and mid-sized integration or alarm companies. You can get value for installation/service revenue but the owners should recognize that they may only get paid out over time and what they get paid will depend on their post-closing performance.

On another front, we should be watching the Canadian cable companies & telecoms - Rogers, Bell Aliant, Sask-Tel/SecurTek, MTS/AAA and Eastlink – who are all in the security industry. They obviously find the security industry attractive but this may be bad news for smaller players who will undoubtedly lose business to the cable/telcos. In addition the feedback is that the US cable and telecoms recent entry into the alarm market has been proven quite successful. This will not be lost on their Canadian equivalents. So far only a couple of the Canadian cable/telcos have expanded their activity in the alarm industry beyond organic growth into the acquisition & authorized dealer sides of the business (SecurTek, AAA). My guess is this may change in the future and could dramatically change those markets in Canada.

On the fire side, there is also good news for sellers. One of the major fire companies in Canada has been actively buying and 2 other national players are showing much more interest in buying. If you are wondering what your fire services business is worth my experience is that buyers on the fire side use some variation of a “multiple of earnings” to determine what they will pay.

On the guard side, the biggest news recently is that Garda has come out of hibernation in the last two years and is very active buying again. The other large guard companies- G4S and Securitas- have been quieter.

All in all then, it is a good market for sellers in the security industry right now. There are buyers out there in each segment and the buyers are paying pretty good prices.

About Harding Security Services Inc (HSSI)

Victor Harding entered the security industry in 1993 with a partner by buying a network of 50 franchised alarm dealers in Ontario and the Maritimes called Alliance Security. This introduced him to the wonders of recurring monthly revenue (RMR), to buying monitored accounts and to running a network of security dealers. But even then the security market was changing rapidly. The price for alarm systems was dropping like a stone. Bigger players with deeper pockets were required and Alliance Security was sold to VOXCOM in 1997. Victor spent the next 12 years working first for VOXCOM Inc and then for Reliance-Protectron Security buying smaller alarm companies and developing a national dealer program for each.

In 2009 Victor formed Harding Security Services Inc (HSSI) to leverage his skills, experience and extensive network of contacts in the security industry to provide independent advice to owners a) who wanted a valuation done b) wanted to sell their company or c) wished to design or improve an authorized dealer program- all services that were being provided in the US but not so much in Canada.

HSSI started by offering these 3 services to alarm dealers only and just in English Canada. In 2012 we expanded our market to include fire and guard companies in English Canada. By mid-way through 2014, we were offering our 3 services to all of Canada included Quebec.

In its M & A work, HSSI works with sellers to guide them through the entire process of selling their company including the creation of a Confidential Business Review, finding multiple buyers, receiving bids, negotiating the terms of a Letter of Intent, managing the due diligence process and working with the owner on the Purchase and Sale Agreement to close the deal. For this, HSSI is paid a small % of the final sales price. HSSI also helps owners buy companies as well.

In its valuation work, HSSI primarily utilizes Victor Harding’s accounting background (CA) and his knowledge of alarm, fire, guard and integration businesses, how they are valued and what deals have been done in each market. Most importantly, we understand how to value recurring monthly revenue (RMR) which is often a big part of many security companies and is valued differently from normal business revenue. HSSI is paid a flat fee on valuations based on the complexity of the deal.

Finally, in work on authorized dealer programs, HSSI capitalizes on Victor’s 15 years of experience in designing these programs first with his own network of dealers and then with VOXCOM and Protectron. Here HSSI bills out it’s time as a consultant at an hourly rate.

Victor Harding is a Chartered Accountant by training and lives and works out of Toronto, Canada. Before entering the security business in 1994, he had many years of small and large company experience in senior financial, sales and consulting roles in both privately- controlled and publicly- traded companies. You can learn more about him at www.hardingsecurity.ca.

Victor Harding

Harding Security Services Inc

Toronto, On, M4T1A3, Canada

P: 416-925-7474

E: victor@hardingsecurity.ca

Why you are getting this newsletter

If you are getting this newsletter, it is because you are in a senior position of a security company in Canada and I have talked or done business with you in the past. Alternatively you could be a member of one of the following organizations all of which I am a member of as well - Canasa, CFAA, TAOL, CSAA, ESA or the SIA.

If you would like me to use another email address to deliver this newsletter or if there is someone else in your organization who should be receiving this newsletter, please email me at victor@hardingsecurity.ca.