Universal Services of America has been busy with acquisitions lately—and it has more in the works as 2012 comes to a close.
The Santa Ana-based security and maintenance services company has made five deals since May, a streak that reflects the nature of its industry. It also has been pushed along by concerns about pending changes in tax codes and increased costs of healthcare benefits.
“The personality of our industry is that there are over 5,000 security companies [in the U.S.], and the top five companies, which we are one of, make up 50% of the total market share,” Universal Services’ Co-Chief Executive Steve Jones said. “The larger companies are consolidating the industry. We’re going to be closing on a couple more acquisitions before the year is over.”
Privately held Universal Services does not disclose terms of its acquisitions. It has about 20,000 employees, with nearly 2,000 in the company’s Orange County operations, including subsidiaries Universal Protection Service and Universal Building Maintenance.
Universal Protection is the largest chunk of the company’s overall business, accounting for more than 80% of the total revenue of about $625 million, Jones said. Its chief competitors in the upper tiers of the contract-security industry include Parsippany, N.J.-based Securitas Security Services USA Inc.—which has grown to about $3.5 billion in revenue through roughly a dozen acquisitions since 1999—and AlliedBarton Security Services LLC, a Conshohocken, Pa.-based firm with about $1.8 billion in revenue after roughly 10 acquisitions.
The pace of the consolidation trend has picked up across the board, pushed along by an anticipation that many owners of smaller firms are willing sellers right now because of “tax increases, making it more expensive to sell after the 2012 year,” according to industry analysis by Robert H. Perry & Associates Inc., a Greensboro, N.C.-based brokerage firm that manages transactions among private security companies.
Tax proposals worrying business owners include the possible expiration of the Bush tax cuts at year-end, which would raise the capital-gains tax rate to 20% from the current 15%.
Perry & Associates said a company “will have to be about 7% larger just for the owner to net the same dollars as it would have, had it sold the company before the tax increase.”
Expectations of higher healthcare costs as recent reform measures take full hold in coming years are another factor helping to prompt sales in the labor-intensive private security industry. Small companies fear that added healthcare costs will tighten margins just as they regain their footing in the wake of the recent recession.
Not Alone
Universal Services isn’t alone on the acquisition trail. The industry has seen a growing number of transactions in recent years, according to Perry & Associates. There were 74 deals in 2011, compared with 65 in 2010 and 56 in 2009.
The company’s buying spree has been strategic as well as opportunistic, according to Jones. They’ve given Universal Services a presence in “two very important markets we wanted to be in: the Southeast and the Midwest,” he said, citing the buys of CastleGuard Security in Plantation, Fla., and A&R Security Services Inc. in Blue Island, Ill.
Universal Services also has bolstered its Southern California operations with the buy of Los Angeles-based RJWestmore Inc. earlier this month, and San Diego-based Heritage Security Services in May.
New additions also can be readily rolled into Universal’s existing operations, he said.
“The companies we’ve been buying … aren’t high-risk,” Jones said. “They’ve been companies that are strategically important for us. We haven’t reached outside of our comfort zone.”
Many of the smaller firms have long counted on bigger competitors as part of their long-term plans.
“Most of the smaller and regional companies will build up over time and sell to one of the larger companies as part of their exit strategy,” Jones said.
Outside Investors
The industry now is attracting outside investors willing to finance buys, according to a recent report by Perry & Associates. Some private equity firms are “scrambling around to find viable investments that will give their investors an attractive return, and are looking to the security industry as investment possibilities,” according to the firm.
Recent examples: Affiliates of Goldman Sachs Capital Partners in New York bought Roswell, Ga.-based U.S. Security Associates Holdings Inc. from Chicago-based Wind Point Partners last year.
LaSalle Capital Group LP and Expedition Capital Partners LLC, both in Chicago, combined investments in 2010 to buy three security-guard services companies, creating United American Security LLC in Raleigh, N.C.
Universal Services wasn’t always a big fish. It started in 1965 as a janitorial services provider. It branched into security, and sold the janitorial division in the late 1980s. The company grew organically for decades, reaching about $250 million in sales by 2007.
“Since 2007, the company has been growing [both] organically and through acquisitions to its size today,” Jones said.
This year will likely be a watershed for the company.
“Next year, we don’t anticipate moving this fast with acquisitions,” he said. “For the most part, once we close [the pending acquisitions], we’ll start the full integration process, bringing our culture and procedures together.”
Brand Work
The company typically takes about 90 days to fold new additions into its existing brand, complete with name changes and new uniforms.
“Owners of acquired companies stay on about half the time,” Jones said. “We usually keep the key managers. Next year’s focus for us will be continuing to build upon that. We’ll be spending a majority of our time on leveraging our relationships and trying to open up those opportunities.”
