Initial to sell to AlliedBarton; gets out of guarding in N.A.

Thursday, June 15, 2006

KING OF PRUSSIA, Pa.--Rentokil Initial reached an agreement with the privately owned AlliedBarton earlier this week to complete its sell-off of its guarding operations in North America. Following regulatory approval, AlliedBarton will acquire Initial Security, all of Rentokil's U.S. operations, for $73.6 million. Allied Barton is already the largest U.S.-owned guarding company, based here, with 74 offices across the country.
Initial will add 45 more branch offices and roughly 8,000 guards. The deal is expected to close in early August.
This follows the March sale of Rentokil's Canadian guarding operations to Garda World Security for $60 million. Rentokil purchased Stanley Smith Security, of Texas, and Barnes Security, of Toronto, from Australian company Mayne Nickless for $51 million in 1995.
Jack Mallon, managing director of investment bank Mallon Associates, said $73.6 million represents "an attractive price-tag for Allied, in light of the inflated amounts for guarding companies in the not too distant past."
Specifically, AlliedBarton acquired Initial for roughly 30 percent of the company's $250 million in 2005 revenues, which Mallon said is in line with historical percentages. However, prices had been higher lately, particularly in Securitas' purchases of Pinkertons and Burns in 1999 and 2000, where they paid as much as 50 percent of annual revenues, though Group 4 Securicor's purchase of Wackenhut was as low as 20 percent of annual revenues.
More importantly, however, "AlliedBarton, funded by McAndrews and Forbes, apparently has staked out the billion-plus security market ... designed to become the 800-pound U.S. gorilla to compete head-on with Securitas," Mallon said. The question, Mallon added, is where does Allied go from here? There's some speculation that AlliedBarton might prepare to go public, but with slender margins in the guarding industry to begin with, and debt that was likely brought on with the Initial purchase, it's unclear what their bottom line might look like.

See the August issue of Security Systems News for more on AlliedBarton's Initial acquisition.