Will M&A activity continue at this frenzied pace?

With just about a month or so to go, 2021 has been a year to remember, with M&A activity, including blockbuster deals that seem to be announced every month, lighting up the headlines and pointing to a continuing year of transition. Looking back at this year and the year ahead, Security Systems News readers see this frenzied pace continuing into 2022.

For example, in this month’s News Poll, about two thirds (65 percent) of respondents feel this year’s activity is more than usual, with a resounding 72 percent saying 2022 will be another busy year.

“U.S. monetary policy flooded the market with cheap money over the last 20 months,” said one respondent. “Minimal borrowing costs continue to drive increased consolidation across the marketplace.”

Other readers agreed, with one noting, “As scale continues to be a big driver of success in this industry there will be more consolidation. Super Regional companies will have an advantage in this market if they can meet the demands of high touch customers. National companies can’t and small local companies won’t have access to expensive technology to help manage their businesses. The Era of small Mom and Pop companies may be coming to an end.”

Another reader opined, “The busy 2021 is likely partially a product of postponed deals from 2020. However, the conditions for strong M&A activity - available low cost capital, supply of sellers, strong buyers - continue. At least that is what we're seeing at Alarm Financial Services among the small to medium size companies we work with.”

One respondent pointed out that the required 4g/5g radio upgrades will boost activity in 2022, noting, “As DIY and new entrants continue to affect available market for local dealers, and attrition continues to erode customer base, there will be a strong incentive for dealers to get out while multiples are still high.”

Looking at whether or not this is a buyer’s or seller’s market, readers were split at about 40 percent each, with just about 20 percent saying they were unsure.

“With regard to a buyers or sellers’ market, it seems that there are companies that have available cash and have a need to be in a specific market in which they will pay a slight premium,” said one reader. “However, there are sellers that may be reaching retirement and had enough post covid in which a more buyer favored deal can be leveraged.”

Another added, “It seems like the industry has reset itself from a valuation basis. More reliant on cash flow performance and less on growth rate. I do believe that the residential market has been devalued more than it should due to a few companies that mass market having financial issues.”

It is pretty clear that we are in for another wild year in 2022, so hold on and enjoy the ride!