Guard merger to produce $4.5b ‘AlliedUniversal’

Deal expected to produce $100 million in synergies
Wednesday, May 4, 2016

CONSHOHOCKEN, Pa. and SANTA ANA, Calif.—AlliedBarton Security Services and Universal Services of America on May 3 announced a plan to merge, creating AlliedUniversal, a guard company with $4.5 billion in revenues and 140,000 officers.

AlliedUniversal is expected to realize “approximately $100 million in synergies,” according to the announcement.

Asked about the synergies, Bob Perry, president of Robert H. Perry & Associates, a business consultant who specializes in the guarding industry, said the estimate appears to be reasonable “given the fact that both companies share such a common footprint, so there’s a lot of redundant cost savings in the merger.” He said the synergies would give AlliedUniversal “about $440 million of EBITDA on $4.5 billion of revenue (a little less than 10 percent ), which is aggressive, but not unreasonably so given the size the company will be after the merger and the scale of synergies in relation to revenue involved in the restructure.”

Perry said there is a substantial upside for the customer base of the two companies. “The AlliedBarton customers will now have access to Universal’s state of the art video monitoring and systems integration  offerings (THRIVE) and Universal’s customers will get the benefit of AlliedBarton’s information technology offerings recently put in place that makes the company more efficient in managing the remote, smaller customers.”

He noted that both companies currently use subcontractors in places where they don’t have an established office. “This merger should help both companies in being able to eliminate, or at least minimize, the reliance on subcontractors that are not only expensive, but often don’t give the level of service being offered by AlliedBarton or Universal.”

The deal is expected to close in the third quarter of 2016. Steve Jones, CEO of Universal Services of America, will serve as the CEO of the combined company. Bill Whitmore, CEO of AlliedBarton, will serve as its chairman of the board.

Security Systems News requested an interview with Steve Jones. However, Universal’s media representative said Jones will not grant interviews until after the deal closes, SSN was told.

The potential challenges of combining these two companies are the same encountered in any large merger, Perry said.

“It’s keeping the qualified management in place for both companies until the integration can be sorted out; and making sure the lines of communication are always open to the managers that start to worry that they may be part of the $100 million in cuts.”

Perry likened it to the task Protection 1 CEO Tim Whall faces in merging Protection 1 and ASG with ADT. “It’s a daunting task, but if done right, makes for an attractive investment for Warburg and Wendel and a very strong concern for the competitors.” Perry said that Steve Jones and Bill Whitmore “certainly have the stamina and qualifications to accomplish this—assuming they get the support.”

AlliedBarton is a portfolio company of Paris-based private equity group Wendel, which paid $1.67 billion to acquire AlliedBarton from the Blackstone Group, owners of Vivint, in July 2015.

Universal Services of America is a portfolio company of Warburg Pincus and Partners Group. Warburg became the majority owner of Universal in July 2015.

Warburg and Wendel will be lead investors in the combined entity with equal voting rights and three board members each. Partners Group and members of management will also have ownership interests in the combined company.

Perry believes that investors Warburg and Wendel have their eyes “on the IPO market.” He noted that “a $5 billion company would certainly make for an interesting Initial Public Offering. Wendel, especially, likes the public market. A lot of their holdings now are in public stocks.”  

The transaction is expected to close in the third quarter of 2016. It is subject to regulatory approvals.

Founded in 1957, AlliedBarton has 120 regional and district offices located throughout the United States in a number of markets. Founded in 1965, Universal Services is a $2.5 billion company with more than 80,000 employees. It provides guards as well as some electronic security installation services. It has been adding to this capability in recent years.

Perry expects AlliedUniversal to roll out electronic security installation capabilities to the customers, “as well as a wider menu of services such as cybersecurity.” Cybersecurity is “getting a lot of attention in the guarding companies today.”

Universal also provides clients janitorial solutions and safety and emergency preparation services.

With this merger, AlliedUniversal “adjusted pro forma synergized EBITDA of approximately $440 million including approximately $100 million in synergies.”

In exchange for its contribution of its shareholding in AlliedBarton Security Services, Wendel SE would receive approximately 33 percent of the shares of AlliedUniversal and a cash payment of approximately $387 million. Warburg Pincus would also hold approximately 33 percent of the shares and Partners Group approximately 17 percent.

AlliedUniversal is expected to put additional financing into place, resulting in a total debt-to-EBITDA ratio of approximately 6.25 times the combined company’s adjusted pro forma synergized EBITDA.