Industry gives thumbs-up to private equity

Only 12 percent pessimistic about PE
Wednesday, December 16, 2015

YARMOUTH, Maine—Private equity has a foothold in security, owning companies like Vivint, Protection 1 and CSG Security, but how does the industry really feel about private equity? Security Systems News’ latest poll showed that half of respondents have worked with private equity and most would consider selling their business to a PE group.

“Private equity in the security industry can accelerate growth. Most of us are limited to growth through cash flow excess which is slow and often ineffective,” said Joe Rosenthal, president and CEO of Georam Security.

Thirty-one percent said that private equity interest in the security space is beneficial, bringing money and attention. A majority—57 percent—of respondents said that private equity groups are different, but some bring good business expertise into the industry. “Private equity brings smart money and smart people into our industry,” said one reader.

Nathan Leaphart, CFO for private-equity owned Electric Guard Dog, said being owned by private equity is a “benefit to management as it forces management to continue to innovate and seek ways to benefit shareholders.” The PE owners “are also able to provide resources from a financial and operational expertise perspective that might not be available to a private company otherwise,” he said.

Tom Gambon, CFO at Isonas, described the place of private equity in the industry this way: “Private equity firms provide much needed growth capital to many companies. Yes, they want to turn a profit on their investment, but they are essential part of small business growth.”

Nick McAmis, president and CEO and Sentry Security Solutions, said, “Private equity gives a small company the opportunity to grow, staff, and market at a faster pace allowing them to have a more noticeable presence in the industry and marketplace.

“In addition, they can generally offer sound business advice and guidance, which can give your core executive staff a different perspective for business management,” McAmis said.  

Some respondents were less enthusiastic about PE in the industry. “Profit is a good thing, and investment is a good thing too, but security companies aren't all in a position to be leveraged for profitability. Market position or footprint does not equate to overall success,” Daved Levine, owner of SCI, said.

“[It] depends on their strategies, longer term intentions and whether they are playing a straight bat or they are using one play to achieve another,” said another reader.

Twelve percent of respondents believe that PE negatively impacts the industry. “These groups inherently are about turning a profit at the expense of both the client and employees,” one respondent said.

Forty-three percent said they would sell their business to private equity, and an additional 37 percent said they would sell to a private equity group for the right price. Twenty percent said they would have concerns about how private equity would run the business.

“I would vet them the same way I would any potential buyer,” said Tracy Hendrix, president and CEO of Femac.

Forty-seven percent of respondents said that they have worked with private equity companies in some capacity—49 percent said they haven’t yet. Four percent refused to work with PE companies.