Should COVID-19 Give Security Companies Reason to Worry About Their Future?
Ron Davis, Security Sales & Integration, April 16, 2020
Are you concerned that your company is losing value, or the COVID-19 will help DIY put an end to pro security? Industry veteran and consultant Ron Davis explains why there's no reason to worry.
well-known attorney in the security industry believes that the multiples for RMR have stabilized at about 34X. Several financial gurus are absolutely convinced that we will never see multiples anywhere near what they have been.
And, in a broader viewpoint, I’ve talked with quite a few “thought leaders” in the industry who are convinced that once we come out of the COVID-19 crisis we are going to have to reinvent the alarm industry to meet the needs of what some people think is a new world order.
The do-it-yourselfers, direct selling organizations and other marketeers will become the dominant players going forward. You think? Not very likely, just like all the prognostications our leaders are making about the post-crisis future.
Just like the little bumblebee going from flower to flower, collecting honey, doesn’t listen to all of the scientists who say that bumblebees are too big for their wing size and consequently can’t fly. Just like some politicians are all over the map trying to paint a rosy picture about post-pandemic life, even the scientists who are trying to prognosticate what the immediate future really holds, I’m not sure anybody really knows.
Let me share with you what I do know. Multiples are approximately where they have been for the last umpteen years. Sure, there are fluctuations, both up and down, that pop up now and then, but the reality is in over 20 years, being involved in hundreds of transactions, I don’t believe we’ve ever seen (or negotiated for) a multiple as low as 34X.
I’m sure there have been deals consummated at that multiple, or even lower, however that is not the norm. Right now, our group is representing half a dozen quality integrators.
There are probably 20 or more traditional alarm companies that we are either representing or in the process of finalizing a deal and virtually all of them are at multiples that are consistent with what we were getting pre-pandemic. And of greater importance we are starting to get calls from potential sellers as well as buyers, looking to get deals done.
So where did all of the negativity that is out there come from? I guess a good portion of it originated in the financial community when several banks decided they didn’t want to finance alarm accounts, going forward. That was a signal (or so it was thought) that the money for doing security related transactions was going to dry up.
It didn’t. Most of the financial community that were invested in the security industry are happy with their investments and will continue to pursue good transactions. If the emails and letters we get from private equity investors are any indication, there is plenty of that money available also, and I believe that money will be available in the future as we come out of this “recession” we seem to be experiencing.
Actually, some really good things have happened during this pandemic. People have learned they can work out of their homes and still be effective. Business executives have learned how to manage money far more effectively than they did before the COVID-19 pandemic.
Even creative salespeople have learned how they can get in front of prospective customers during this crisis. Many business executives have been quoted as saying they will learn how to provide customer service in ways they never dreamed were possible.
I came into this industry about 50 years ago. I was young, I was inexperienced, I didn’t know what I didn’t know. I started four different businesses including Security Alliance, Security Associates and the firm I’ve been heading up since the late 90s, Davis Mergers and Acquisitions Group.
In some things I’ve been successful, and in others, not so much. However throughout all that time, including the highs and lows, I never once experienced either a success or failure as a result of “changes in the industry.” Most industries go through business disruptions, economic tightening, new competition and certainly, different pricing models. But quantum changes? Paradigm shifts? Not so much.
If you’re building a company, continue building … there is a great market out there waiting to be served. If you are at a point in time where it’s best to sell your company, make sure you’re represented by an optimist … they tend to get things done.
And if you’re not sure what the future holds for you, and you’re concerned about changes that may take place, give me a call and I’ll try and talk you down!