How to Benchmark your Growth in the Security Industry
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In this webinar, we outline the Security Growth Curve, which provides you with the context of the different levels of maturity to effectively assess where you are relative to the industry in terms of value and maturity.
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How to Benchmark your Growth in the Security Industry
- 1. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential The Security Guard Industry Maturity Cycle: Where are you on the Growth Curve? August 13, 2019
- 2. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential 1 2 3 4 The Guarding Market: Analysis of the Current Market How Market Conditions are Impacting Growth: The Growth Curve and Maturity Matrix: Where Do you Sit in your Growth Moving Up the Curve: Tips for Success and Strategies for Growth AGENDA
- 3. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential Jack Goldsborough Principal Consultant Whitehaven Advisors LLC • 45+ years in the security services industry • Former CFO of T&M Protection Resources, LLC • Former executive of Burns International (Securitas) and other regional and national security organizations • ASIS and ALDONYS board member • Current Principal Consultant at Whitehaven Advisors • Co-founder of TDI; a computer supply company TDI was acquired by OfficeMax in 1997 • Joined Valiant to head up Sales, Marketing and Business Development • 19 years experience with Valiant solutions, serving the security market throughout all operations • Attended, facilitated and participated in ASIS, CALSAGA, ASSIST, NCISS and Valiant's National executive roundtable events Jeff DiDomenico VP of Business Development TODAY’S SPEAKERS
- 4. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential 30 YEARS OF GUARDING 2018 Company Employees Allied Universal 140,000 Securitas 110,500 G4S Secure Solutions USA 57,000 National Security Alliance 14,661 Andy Frain Services, 11,750 SecurAmerica 7,000 SOS Security 6,500 Whelan Security 5,700 Walden Security 5,500 Command Security Corp. 5,200 DSI Security 4,300 Covenant Services Worldwide 4,200 St. Moritz Security Services 3,000 United American Security 2,825 Madison Security Group 2,465 Per Mar Security & Research 2,036 SunStates Security 1,936 APG Security 1,882 CPS Security Solutions 1,600 Monterrey Security Consultants 1,500 Elite Investigations 1,453 Titan Security Group 1,400 Vinson Guard Service 1,125 Premier Security/Apex3 Security 1,100 Arrow Security 1,100 Cambridge Security 1,000 Monument Security 950 United Security 850 Master Security 810 GMI Guard Management 600 1990 Company Employees Burns International Security Services 42,868 Pinkerton's Inc. 24,206 The Wackenhut Corporation 22,000 Wells Fargo Guard Services 15,100 American Protective Services 10,500 Guardsmark, Inc. 8,000 Stanley Smith Security Inc. 8,000 Allied Security 6,958 Advance Security, Inc. 5,000 Security Bureau 5,000 Murray Guard 3,400 First Security 2,800 Professional Seecurity Bureau 2,800 Weiser Security 2,600 Barton Protective Services 2,500 Effective Security Systems 2,500 American Security and Invest. Svcs. 2,500 United Security Group 2,300 SecuriGuard 2,250 Security Forces, Inc. 2,200 Pedus Security Services 2,000 Security Operations Systems 2,000 Command Security Corp 1,815 Doyle Detective Bureau 1,680 Bell Security 1,550 SpectaGuard 1,500 D.B. Kelly Associates 1,400 OCS Security 1,300 A&R Security and Investigative Services 1,258 Guardian Guard Services 1,200 Per Mar Security Services 1,150 Vinson Guard Service, Inc. 975 Lansdell Protective Agency 900 McRoberts Protective Agency 800 MVM, Inc, 760 193,770 399,943 - 100,000 200,000 300,000 400,000 500,000 Total Lives in 1990 Total Lives in 2018 5,536 13,331 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Average Guard Firm Size in 1990 Average Guard Firm Size in 2018
- 5. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential 60% OF THE MARKET’S REVENUE is held by 6 major security guard firms 25% 15% 6% 2% A MARKET VIEW According to a report published by the Bureau of Labor Statistics, more than 78 million Americans* — or nearly 59 percent of the U.S. workforce — are hourly workers. Encapsulating such a substantial percentage of the workforce, it’s vital that companies implement employee development programs that will focus on this underserved sector of the American workforce. *https://www.bls.gov/opub/reports/minimum-wage/2015/home.htm $44b $25.5b $14.1b $7.1b Outsourced & In-House Security Industry Outsourced Contract Security Industry Revenues For The 3 Industry Leaders Revenues for the 2 Majority Foreign-Owned Industry Leaders 800k 8k Companies in the U.S. 4% Organic Growth For The U.S. Market 4% Total Revenue Growth For the U.S. Market Outsourced Security Officers
- 6. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential 25% 15% 6% 2% 1528 787 644 231 60 31 27 26 20 12 8 9 0 200 400 600 800 1000 1200 1400 1600 1800 Number of Guarding Firms by Employee Size Over 87% of the market is made up of Companies under 250 employees A CHANGING LANDSCAPE Companies with # of Rev Size # of Rev Size Revs Chg Annual Revenues Cos. ($ mil) Cos. ($ mil) ($ mil) Pct Over $1 billion 4 9,200 4 14,100 $300M -$1B 4 1,911 4 1,900 $100M -$300M 9 1,396 15 2,700 $50M -$100M 11 650 16 1,300 Over $50 million 28 13,157 39 20,000 6,843 52% $20M -$50M 12 462 42 1,200 $5M -$20M 200 2,000 200 2,300 $0M -$5M Total 7760 4,381 7719 2,000 Under $50 million 7972 6,843 7961 5,500 (1,343) -20% 8000 20,000 8000 25,500 5,500 28% 2012 2018 6 Yr Chg Source: Robert H. Perry & Associates, Inc. and Whitehaven Advisors LLC (2019)
- 7. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential MARKET CONDITIONS Marketing Conditions are Driving a Need For Smart Growth TECHNOLOGY’S IMPACT ON OPERATIONS: INTERNATIONALIZATION OF DOMESTIC MARKETS THE “AMAZON EFFECT” ON PHYSICAL SECURITY CONSUMER-DRIVEN CROWD/SOCIAL RETAIL-DRIVEN COMMERCIAL >
- 8. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential CONSUMER-DRIVEN CROWD/SOCIAL RETAIL-DRIVEN COMMERCIAL TECHNOLOGY’S IMPACT ON OPERATIONS: LIVESAFE Employee-Driven User-Friendly Cross-Functional Mobile-Based The client workforce becomes a communication channel for security Improves security response times Increased visibility into the client environment Deeper client relationships and client stickiness Core functionality can be embedded into existing native Apps. Turning Clients Into Security Checkpoints
- 9. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential INTERNATIONALIZATION OF DOMESTIC MARKETS INVESTMENT 9/11 2008 Financial Crisis Rise in Investment of Physical, Private Security – Elevated the Financial Importance of Physical Security Steady increase in Investment – Private Sector, expansion of Security Portfolio: SPX Corp. acquires Vance International $95 million – 2002 acquisition Blackwater was awarded $2 billion in government security contracts Decline in Bank-Backed Loans – Financial Crisis Private Equity fills the gap left by Banks Steady increase in Private Equity Investments with M&A Strategies: G4S – Alvarez & Marsal Capital Allied – Wendel Investment Mgmt MSA – PWP Growth Equity GardaWorld – United Security Prosegur – Command 2001 2008 2019 Private Equity, International Players Bring New Opportunities
- 10. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential THE “AMAZON EFFECT” ON PHYSICAL SECURITY > ROBOTS & DRONES “Amazon patents ‘surveillance as a service’ tech for its delivery drones” Source - Are Robots & Drones Augmenting Operations?
- 11. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential THE “AMAZON EFFECT” ON PHYSICAL SECURITY > ROBOTS & DRONES “Amazon patents ‘surveillance as a service’ tech for its delivery drones” Source - Are Robots & Drones Augmenting Operations? How are companies able to drive their value, compete with the “Big Boys” and scale their business? This is where you need to understand: 1. Where you are TODAY 2. What you need to do to GROW and 3. The steps to mature your business with PEOPLE, PROCESSES and TECHNOLOGY. BIG SECURITY – THE “SLEEPING GIANTS” OF THE INDUSTRY
- 12. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential THE SECURITY GROWTH CURVE CAPABILITIES: The ability to drive value through breadth of services/products, ability to streamline operations through technology, and ability to serve a larger portion of the market. OFFERING! MATURITY: Process, People and Technology to help grow and scale the business beyond the competition. Better alignment of operations to foster growth. EXPERIENCE!
- 13. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential THE MATURITY MATRIX: MOVING UP THE CURVE *Valuation for purposes of this illustration represents intangible assets only (customer accounts, goodwill, brand recognition and intellectual property) and excludes net tangible assets (total assets less intangible assets and liabilities).
- 14. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential THE MATURITY MATRIX: MOVING UP THE CURVE • Startup, local guarding company with nominal infrastructure • Limited footprint – local and adjacent counties • Less than 50 clients, under 100 guards • Serves one or two predominate clients or a particular niche – such as a gated community. • Manual operations – white boards, timesheets, etc. • Minimal technology – Excel, QuickBooks • Sales and marketing – primarily through referrals • Recruit manually – through local papers and word-of-mouth. • Pay and compliance: ‘Fly under the radar” • Valuation as a “Tuck-In” only based on monthly recurring revenue (MRR) – 2.5x – 3.5x
- 15. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential THE MATURITY MATRIX: MOVING UP THE CURVE • Established infrastructure with expanded regional footprint, sometimes with multiple locations (offices) across states • Between 50-150 clients, 100-1,000 guards • Multiple verticals typically including commercial/retail, corporate/industrial, institutional and niches (i.e. real estate, gated communities) • Services include guarding and other manned services with 24/7 command center + some systems • Off-the-shelf scheduling apps + Excel and QuickBooks and outsourced payroll service • Sales & Marketing includes some direct sales, website and limited social media • Basic HR functions + job boards to attract and onboard talent. • Valuation – if infrastructure sufficient, can be based as a “Platform” acquisition with EBITDA multiple range of 4 – 6x or otherwise valued as a “Tuck-In” based on MRR
- 16. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential THE MATURITY MATRIX: MOVING UP THE CURVE • Larger security firm with substantial infrastructure and a multi-regional footprint with national presence • Between 150-750 clients, 1,000-10,000 guards • Wide variety of verticals and niches served with multiple divisions to handle different business sectors • Expanded service offering with 24/7 SOC + technology component (Video monitoring, Mobile security, etc.) • IT system with integrated platforms with HR, Scheduling, Payroll, Billing and General Ledger and Financial Reporting, etc.) • Sales & Marketing - includes direct sales, CRM, interactive website and social media and emailing campaigns • Valuation – valued as a “Platform” acquisition with EBITDA multiple range of 5 – 7x
- 17. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential THE MATURITY MATRIX: MOVING UP THE CURVE • Global organization capabilities with international presence & multi-national accounts • Has merger and acquisitions group to pursue and support new opportunities for growth • Over 750 clients and over 10,000 guards, with a complete portfolio of products and services including traditional integrated systems, G-SOC and new technology offerings (i.e. robots, etc.) • IT systems and processes include full ERP + enterprise-level workforce management solutions • Processes are completely optimized • Leverage enterprise-level workforce management solutions • Sales & Marketing – substantial marketing capabilities including CRM, interactive website and social media and direct emailing, active trade show representation, extensive local direct sales capabilities • Valuation – valued as a significant “Platform” acquisition with EBITDA multiple range of 7 – 10x
- 18. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential HOW TO MOVE UP THE CURVE BASELINE: EMERGING: L2 L1 MOVING UP THE CURVE: Process alignment through infrastructure and systems development with expanded services and basic marketing capabilities Typical Key Steps: • Learning the basics: Understanding how to manage key metrics, pricing basics and avoid compliance exposures • Investing in basic workforce management systems to manage key operational metrics and reduce manual tasks and back office staffing costs • Getting outside advice and support for professional advisors on business and investment strategies Financially Speaking: Establish an improved Line of Credit (LOC) or borrowing capacity for working capital to support volume growth requirements.
- 19. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential HOW TO MOVE UP THE CURVE EMERGING: PROGRESSIVE: L3 L2 MOVING UP THE CURVE: Process refinement through infrastructure and organizational development, streamlining operations, expanding marketing capabilities and expanding products services Typical Key Steps: • Marketing; analyze service offerings vs competition, survey client wants and needs, invest in upgraded website and social media with content to attract and keep followers • Leverage HR solutions and teams to conduct wage analysis and drive better recruitment. • Develop quality assurance methods and controls into operational processes Financially Speaking: Exploring private equity and determine what is needed funding for additional investments
- 20. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential HOW TO MOVE UP THE CURVE PROGRESSIVE: INNOVATOR: L4 L3 MOVING UP THE CURVE: Process optimization to drive a smart operation that can operate on a global scale Typical Key Steps: • Invest in an enterprise-wide solution with end-to-end workforce capabilities and integrated processes • Expand breadth of products and services to include fully integrated services and systems with multinational support, leading-edge technology and mobile workforce management Financially Speaking: Expand financing capabilities with an M&A group for acquisitions and potential exit options (i.e. IPO or strategic sale)
- 21. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential ASK YOURSELF….. 1. Process: What am I doing to control operations more efficiently? 2. Product Offering: How am I differentiating myself in the market? 3. Level of Service: What am I doing to build a better level of service for clients? 4. People: How am I creating value for my guards? 5. Financial: Am I investing in my growth?
- 22. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential ONE SIZE DOES NOT FIT ALL • More than just “Levels” • Many factors to consider • This is designed as a basic foundation • Comprehensive formula-based tools are available to assist you in growth
- 23. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential CONCLUSION 1 2 3 4 The Market is Top Heavy in Revenue, but Bottom-Rich in Guard Companies The Challenge of Competing / Growing relies on People, Processes and Technology Knowing Where you are in your Growth will Help Determine how to “Level Up” Benchmark Yourself and Leverage Help Where you Can
- 24. Copyright 2019 Valiant Solutions, Inc. Proprietary and Confidential QUESTIONS? Our integrated Workforce Solution is purpose-built for the Security Industry, backed by a team with more security expertise than any other solution provider. Technology + Experience = Results. OPERATE SMARTER. www.valiant.com 1.800.521.4555
Editor's Notes
- (1/2 min) Jeff: Hi everyone, I’d like to thank you all for joining us today. My name is Jeff DiDomenico, VP of Business Development at Valiant and I am joined with Jack Goldsborough, who is the principal consultant of Whitehaven Advisors, and a 45 year veteran of the security industry. Today we’re going to talk to you about some of the current trends in the Security Guard Space, what market conditions are driving the current trends, and how you can maximize your value as an organization to grow. We’ve actually developed a new methodology for assessing maturity and growth potential, so I think you’ll find this really informative. Let’s get Started!
- (1 min) Jeff: What we’d like to cover today involves the current market of the security industry, and how companies are able to thrive and grow. For the Security Guard industry, the world continues to get smaller and smaller. In the last 5-7 years, there have been more investment in guard companies, more mergers and acquisitions taking place than in the history of guarding. What are the market factors that are causing this movement, and what does it mean for the small to mid-sized guard firm looking to compete in a market where margins are tight and cost of labor is rising? Jeff or Jack: Today we’re going to look at the current state of the market, and how there is a prime need for companies to understand where they fit in the landscape. Most importantly, we will illustrate the levels of business maturity that happens during each stage of a company’s growth, and what you can do to move up to the next level of growth and compete more effectively.
- (1.5 min) Jeff: My entrepreneurial experience began in 1984, as co-founder of TDI; a typewriter rental company which grew over 13 years to become one of the nation’s leading distributors of computer supplies. TDI was also recognized by MetLife as vendor of the year, along with major companies IBM, Lexmark and 3M. In 1997 TDI was acquired by office product giant OfficeMax. Jeff on Jack: Bill Gates quote re; Warren Buffet, Raiders of the Lost Ark… [Jack summary: With over 45 years in the security industry Jack is the principal consultant of Whitehaven Advisors, a specialized consulting, advisory and M&A firm - where he brings extensive experience, thought leadership and industry-specific skills to security owner/operators.] (Jack and Whitehaven Advisors are one of several outside subject matter experts Valiant calls upon to support our security vertical). Shorter bio: Prior to Whitehaven, Jack was CFO of a leading NY firm, T&M Protection Resources. He began his career with Burns (now part of Securitas) rising to the Office of the President and subsequently held leadership positions with other regional and national security organizations. Jack’s corporate background spans a broad spectrum of disciplines including organizational, operational and financial management, with special focus on debt and equity financing, acquisitions, mergers and divestitures. He has been active as a member of the American Society for Industrial Security (ASIS) and the Associated Licensed Detectives of New York State, Inc. (ALDONYS) where he served on the Board and was President from 1993-1994. Jack on Jeff: Thanks Jeff, living up to an analogy with WB is a pretty tall order, but I’d be remiss if I didn’t also acknowledge your extensive and truthfully unique 20y involvement and perspective on this industry – including the many hundreds of security companies you’ve supported.
- (1 min) Jeff: If you were to look at Bob McCrie’s Security Letter from 30 years ago and compare it to this past years list, you’ll find that the companies that were once dominating the market are largely absent. In some cases, there is just a natural progression of exits from the industry but, more often than not, the resulting change is because the companies that were there decades ago were acquired or merged into others, forming large conglomerated businesses with a more diverse portfolio. Plug for SOS, DSI, St. Moritz. Others…
- (1.5 min) Jeff: Here’s a view of key stats from Robert Perry’s 2018 White Paper). In fact, one interesting point to this landscape is that there are only 6 companies (G4S, SOS, Securitas, Allied, GardaWorld, and Prosegur) that make up 60% of the revenue generated by the industry at large. NOTE: Prosegur and GardaWorld were NOT on this list when we last did the report on the industry, so the changes are happening fast – within a period of 6 months.
- (3 min) Jack: When we compare Bob Perry’s 2018 White Paper to his WP 6 years earlier in 2012 we see a dramatic shift – a consolidation at the top: with security companies over $50 million in revenues showing revenue growth of $6.8 or 52%. These 39 companies now represent almost 80% of the U.S. market while the market share of companies under $50 in revenues shrank $1.3 billion. Why, what’s happening here? Three basic reasons: Acquisitions – even with reported higher client retention rates, net revenue growth requires new sales to replace losses. But organic sales growth takes longer to develop while acquisitions enable a faster path to increasing market share. Technology – as we’ll cover later, also through acquisitions, technology revenues are becoming a larger part of the guard market share, and Rate increases – which are probably the biggest driver of revenue growth Jeff: But, the counterpoint to that picture is that nearly 87% of the entire market is made up of companies that are under 250 guards. So you have a top heavy industry in terms of revenue, but a bottom heavy view in number of companies that are considered small to mid sized. Two conclusions might be drawn from this: 1) Smaller companies which adopt the growth strategies of the larger players – including acquisitions and technology – improve their chances for increasing market share, and 2) if successful, will have greater value and become a more likely acquisition candidate by either industry buyers or private investors. Companies, especially those in that 87% group, need to determine how their business is growing, and what to do in order to get in front of the pack, be competitive and operate smarter.
- (2 min) Jeff: “Competing with the Big Boys” is often difficult for the smaller guard firm to find ways to not only compete for business, but drive enough value to grow their business in a shrinking landscape. The market is simply changing; and there are several factors contributing to this change: Technology’s Impact on Operations: More and more security firms are having to offer a technology-based service with their operations. This is becoming a necessity for winning a deal, and as companies try to grow, not having a technology component is a competitive disadvantage. Whether it’s the influence of consumer-driven security (e.g. Nest, Ring), crowd sharing tech (e.g. LiveSafe,) the advancement of tech in peripheral workforce markets ( e.g. McDonalds Kiosk, Home Depot self check out), or commercial security (e.g., Robots, Drones, Facial Recognition, Video monitoring) - the rising cost of labor and the cost reduction of technology as a service makes guarding as a standalone service is on its way out. International and Global Players entering the market: Whereas you once had competition that was in your backyard, you are now seeing internationalization of the market, with companies like Garda and Prosegur looking to expand their operations state side. This introduces another global market into the domestic market, and companies are now competing with businesses overseas for local contracts. All of these competitors come with more than just a larger wallet and gerography, they all have a basket of higher margin services. Think about the outsourcing effect this has – like outsourcing in the software industry, when you are farming out to Lithuania and India, the same thing is going to happen in security – monitoring and offsite activities can be placed overseas, and the cost differential is significant - it is much more cost effective to off shore this effort than to keep it domestically. The “Amazon Effect” on Physical Security: When you start seeing the growth of online retail such as amazon, and the shrinking of the brick-and-mortar stores (think Toys R Us, JC Penney, and Sears) – there is a smaller world from which to compete within. Less retail space means less clients to work with. This is also true in commercial – more and more online business, means less of a field to post to.
- (1/2 min) Jeff: This company was actually founded right after the 2007 virginia tech shooting, by one of the victim’s brothers. So, an unfortunate event spawned a new technology that is actually advancing the way we think about security
- (1 min) Jeff: Significant events will impact the level of investment, and they are triggers or catalysts for investment…..thing that bring security to the forefront, such as 9/11 was one of them. After 9/11, domestic security became a major theme, and companies began to invest in the products and services to provide safety and security to the country. Jack: Examples
- (1 min) Jeff: Robots are cool. Disruption in the market….how are you augmenting your business? Where are the big three companies angling their robotics division
- (1 min) Jeff: Companies need to compete with the big boys, drive value with technology and fight for growth in a space that has less and less opportunities. There are plenty of inhibitors for growth, yet we are still seeing guard firms driving their growth, increasing their foot print in the market, and ultimately becoming a strong, thriving enterprise primed for mergers, acquisitions, or dominance. How are companies able to drive their value, from “Startup to Sold”? This is where you need to understand where you are, what you need to do to grow and the steps to mature your business with people, processes and technology.
- (1 min) Jack: Thanks Jeff. Jumping right in, the growth curve illustrates 4 levels for benchmarking a security guard company’s capabilities and maturity At the beginning of the curve, the guard business has fewer capabilities, breadth of offerings and lower maturity in terms of company size, ability to serve larger markets. As it successfully addresses the challenges of competition and external market conditions, the guard company moves up the curve with increasing capabilities – offering more services and value to its clients With continued success and maturity, it progresses in scope, services and revenues with a growing business reputation and branding, resulting in its ability to compete in the larger market – and in some cases, to a leadership position in the market at the Innovator level. How do we distinguish different levels of growth? What kinds of companies fit into the levels? And what does it take for a company to drive enough value to move from one level to the next. The Maturity Matrix is a useful way for us to see how companies can “Level Up” their business.
- (2 min) Jack: To help define the company’s level of maturity and what’s required to get to the next level, we need to understand the characteristics of these key industry benchmarks at each level. SCOPE – As a general measurement of organization infrastructure, geographic footprint, number of clients and employees, we see the start-up L1 a local operation with less than 50 clients and under 100 EEs…growing eventually to L4 with a global footprint over 750 clients and 10,000 EEs. IT SYSTEMS – This important dimension defines the company’s capabilities to visualize, manage and control all the key metrics needed to successfully operate at that level. This means the IT systems - industry-specific as well as generic business applications. For example; metrics needed to move up to L2 include; direct labor (D/L) and gross profit ratios by client, billable and non-billable S/T and O/T hours, etc.) HR/STAFFING – This increasingly vital capability includes a broad range of manual and automated processes for attracting and retaining employees. (Includes applicant tracking, on-boarding, compensation and benefits, compliance and performance/talent management). SERVICES – Includes the full spectrum of security related services, products and technologies from basic uniformed guard services to a fully diversified offering of fully integrated security systems and client-based information services. VALUATION – This benchmark also increases with the level of maturity, extent of development of each of these dimensions and their impact on the company’s ability to generate sustainable revenue and profit growth. I urge a strong note of caution here as the MRR and EBITDA multiples shown are for illustration purposes only. Ultimately, the valuation will be determined in a sale transaction based on the seller’s ability to negotiate the value of these attributes and the buyer’s agreement to pay this value depending on its wants and needs. This ranges from a “tuck-in” purchase where the buyer basically only wants to acquire the customer accounts to a “platform” acquisition where the buyer needs and is willing to pay for the value of a fully established and matured security firm.
- (1 min) Jack: So, before we get to “How to Move Up the Curve” let’s take a closer look at a typical guard company profile at each level. At L1 we see a start-up company with; A small footprint in its home county and maybe some adjacent counties with a limited organization and infrastructure Probably less than 25 but maybe as many as 50 clients and under 100 guards Operations – with manual processes (i.e. whiteboards and timesheets) with minimal technology It’s value to larger guard companies at this point would be primarily as a “tuck-in” or “fold-in” acquisition where the buyer wants to expand into that footprint or market and is basing its valuation primarily on the customer accounts with a multiple of monthly recurring revenue or MRR in a range of say 2.5x to 3.5x
- (1 min) Jack: At L2 we see an Emerging guard company; With an established organization and an expanded footprint – possibly regional with multiple locations across state lines Likely has between 50 to 150 clients in multiple verticals with 100 up to as many as 1,000 guards Services have some diversity with a 24/7 command center and, in some cases, security systems capabilities Processes now have some automation; i.e. scheduling with outsourced PR services and separate apps for billing and general ledger Basic HR functions include job boards for attracting and on-boarding talent Some marketing and sales capabilities including a basic website and social media It’s value to regional and national guard companies could be either as a larger “tuck-in” or more likely as a smaller “platform” acquisition with sufficient infrastructure to support additional account volume allowing the buyer to add other “tuck-in” acquisitions. Depending on its maturity, capabilities and projected revenue and profitability potential, an EBITDA multiple range of 4x to 6x or higher might be possible
- (1 min) Jack: At L3 we see a Progressive, larger security company; With a substantial infrastructure and a multi-regional footprint with an established brand and national presence Has probably between 150 to 750 clients in multiple verticals and niche markets with 1,000 up to as many as 10,000 guards Service offerings are expanded and now include a SOC with technology components (Video monitoring, Mobile security, etc.) IT systems include mostly integrated platforms with HR, Scheduling, Payroll, Billing and General Ledger and Financial Reporting, etc.) Sales & Marketing capabilities now include direct sales, CRM, interactive website, full social media and emailing campaigns and active trade show participation Depending on its maturity, scope and projected future revenue and profitability potential, it’s value to strategic buyers or PE investors, would be an EBITDA multiple range of 5x to 7x or maybe higher
- (1 min) Jack: At L4 we see the Innovator, a strategic integrated security organization; This company has global organization capabilities with international presence & multi-national accounts And now has a merger and acquisitions group to pursue and support new opportunities for growth Over 750 clients and over 10,000 guards, with a complete portfolio of products and services including traditional integrated systems, G-SOC fusion center with new technology offerings (i.e. robots, etc.) IT systems and processes include full ERP + enterprise-level workforce management solutions to optimize all processes At this level, its value to other strategic buyers or PE investors, would be an EBITDA multiple range of 7x to 10x (highest in recent history was over 11x)
- (2 min) Jack: Now let’s switch and see how companies Move Up the Curve: Frankly, the right steps taken by a L1 guard company are the most vital as they substantially affect its timing and future trajectory across the Growth Curve. Typical key L1 steps include: Learning the basics: Understanding how to manage key metrics, pricing basics and avoiding compliance exposures Investing in basic workforce management systems to manage these operational metrics and reduce manual tasks and back office staffing costs Setting realistic goals and objectives – including personal expectations Getting outside advice and support for professional advisors on business and investment strategies Financially, the L1 company owner must establish an early/improved Line of Credit (LOC) or borrowing capacity for working capital to support volume growth requirements.
- (2 min) Jack: Typical key L2 steps to move up to L3 include: Develop marketing capabilities; analyze service offerings vs competition, survey client wants and needs, invest in upgraded website and social media with content to attract and keep followers Leverage HR solutions and teams to conduct wage analysis and drive better recruitment. Build technology and systems solutions into service offerings asap. Reminder: To your clients, manned guard services are a recurring expense with rising labor and operational costs. Security systems and technology are usually one-time investments which can be amortized over their useful live (usually 5 years) and have lower costs for service and maintenance. Develop quality assurance methods and controls into operational processes Use IT systems to adopt financial discipline for managing expense controls, profitability and AR/collections Financially, the L2 company owner should start exploring funding sources for additional investments and potential acquisitions
- (2 min) Jack: Typical key L3 steps to move up to L4 include: Upgrading IT systems with an enterprise-wide solution with end-to-end workforce capabilities and integrated processes Expand breadth of products and services to include fully integrated services and systems with multinational support, leading-edge technology and mobile workforce management Bundling integrated guarding and security technologies pricing – replacing traditional hourly and separate systems pricing with SOC services – to demonstrate a better value proposition across each of the five stages of asset protection: deterrence, detection, response, intervention and loss mitigation. Financially, expanding the scope of financing capabilities with an M&A group for acquisitions and potential exit options (i.e. IPO or strategic sale)
- (2 min) Jeff: Thanks Jack. From the perspective of these industry examples, here are some questions to ask yourself in order to benchmark your ability to compete and grow your business: Process: What am I doing to control operations more efficiently? As operations grow and become more complex, the management of people and processes requires greater visibility and controls. Technology that analyzes workforce availability and utilization for scheduling, integrates with the payroll and billing, and builds a seamless end-to-end process eliminates manual work, reduces errors, and provides you with efficiencies to operate smarter, reduce costs, maximize profitability to drive greater value and faster growth. Product Offering: How am I differentiating myself in the Market? To be competitive, it’s important for companies to analyze market needs and look at their current offerings to see what makes them unique compared to others. Whether this is focusing on a specific verticals or specialized niches (e.g. Stadiums, Events, Corporate, Executive protection) or portfolio of services (e.g. physical security combined with technology, Off-Duty officers only, etc.), this analysis will help determine strategies and plans for how you will grow and expand. Level of Service: What am I doing to build a better level of service for clients? Early stage companies typically offer a basic level of guard services. However, as you grow and your competitors increase their offerings, you will want to expand your service capabilities and benefits to provide a greater value proposition to the client. This might include more training, supervision and a combination or bundling of services including guarding and technology. People: How am I creating value for my guards? With current tight labor market conditions and potentially better employment opportunities with competitors or other employers, you need to recruit and retain talented guards by paying them at or above local market levels to keep your turnover at a minimum. Best employer practices for employee retention also includes employee recognition and communications – especially understanding the guard’s preferences of job assignments. The key is to determine what makes employment with your company different so that guards will WANT to stay with you? Financial: Am I investing in my growth? One of your company’s primary goals is to make money and grow wealth for yourself – along with any other owners in this enterprise. How you manage this process is essential for your Company’s survival and success. This starts with a clear understanding of your company’s financial condition and its ability to support your growth goals and objectives. At each stage or level of the growth curve, you need to ensure your Company’s financial and investment capabilities remain sufficient to meet these needs – whether from operating cash flows, borrowing or capital funding.
- (1 min) Jeff: While the industry we are covering is Security, every company has its own path to successful growth. The maturity matrix and growth curve are not rigid tools but reference benchmarks to guide planning and investment decisions. Beyond “Levels” there are many issues and factors which must be considered when looking to build a security business that is primed for success. It’s important to understand your business and ask the right questions to ensure you are building a future that will sustain your aspirations, make you competitive and ultimately become something that you can take to the next level. Lastly, this is not always a benchmark for one type of exit. This can be growth to remain independent, take on investment, or create a sustainable business for the next generation. The goal is to understand what your long-term goal is, and build a roadmap for how you will get there.
- (1/2 min) Jeff: The Security Growth Curve is a great foundation from which to understand where you are in the market, and as you try to determine your own value, you want to look to solutions that will help you in that journey. Look for ways to help you build a strategy around people, processes, technology and investment so that you can build a customized roadmap for your business that will take you from “Startup” to “Sold”.
- (x min) Jeff: With that being said, I’d like to turn it over for questions. However, before I do that, I did want to take a moment to talk a little about Valiant. All the points we spoke of are able to be achieved using Valiant Solutions platform for workforce management. Valiant is purpose-built to provide you with the tools to manage and track your workforce, connect time and labor to billing and payroll, and eliminate manual processes while reducing risk. We believe in reducing the risk associated with disparity, and that is why our integrated solution connects all aspects of your workforce operations to ensure compliance and accuracy. With over 25 years of experience in building solutions for the hourly workforce, Valiant Solutions is designed to give you visibility and control in time, labor, payroll and human resource management. We believe that the combination of our industry-expertise, pedigree for the hourly workforce and our technology make us a true partner for driving value and success with our customers. With that out of the way, I’d like to answer any questions you might have.