Equity firm to buy AlliedBarton

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Monday, September 1, 2008

KING OF PRUSSIA, Pa.--The Blackstone Group, a large private equity firm, announced in late July an agreement to purchase guarding firm AlliedBarton, the third largest in the United States, for a reported $750 million.

The purchase price also includes a maximum potential earn-out payment of $50 million, based on the company achieving certain profit targets in 2009.

Sellers MacAndrews & Forbes Holdings, another equity firm, paid $263 million for the company in 2003. However, in the meantime, the company purchased Rentokil Initial’s U.S. guarding operations in 2006 for roughly $75 million. A New York Times report puts AlliedBarton’s 2007 revenues at roughly $1.5 billion, with 52,000 employees.

Robert Perry, founder of Robert H. Perry & Associates, which represents companies looking to sell their security guarding businesses, said this move should create interest within other equity firms who might now begin eyeing the guarding and security market. Already, however, private capital has been more interested that usual.

“We’ve had more interest from investment groups than we’ve had in 20 years,” Perry said. “Several of them are trying to get into the business.”

But aren’t guard firms known for being low-margin, HR-intensive operations? Why would equity firms be interested in that?

The market is “still attractive from a consolidating viewpoint,” Perry said. “The margin at the account level for the small- to medium-sized company is still in the 17 to 18 percent range.” So, if a larger company can come and acquire those accounts, while eliminating overhead, the larger company can “eliminate the redundant cost and add 17 to 18 percent to the bottom line. There’s still a lot of very well-run highly-respected small- to medium-sized security guard companies still available that could be a target for them.”

According to a new study put out by the Freedonia Group, demand for “private contracted security services is forecast to advance 4.7 percent per year to almost $66 billion in 2012.” Freedonia sees pure guarding services accounting for 44 percent of that.

As of early August, the deal still had not closed, and the agreement can be terminated if the merger does not occur by Oct. 10, but companies told news sources they expected to close before the end of August.