KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Fire Protection and equity investors
November 24, 2023
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Fire Protection and equity investors
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Fire Protection business is closely related to the fire alarm business, but it’s quite different, different enough to require different licenses and different skills. While the smart money in the Fire Protection business has embraced the RMR model for after-install services, historically the primary focus in the Fire Protection business has been installation with per call inspection and repair service.
Valuing a Fire Protection business also has its unique characteristics. One notably alarm industry broker [maybe more] has considerable experience brokering Fire Protective companies, Rory Russell. He is listed on The Alarm Exchange in the broker category.
Here is an article by Rory discussing how Private Equity Firms are affecting the Fire Protection market. And yes, they are affecting the traditional alarm industry market as well.
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Ken
The fire protection market has changed a lot in the last few decades. Although investors are not new to the fire protection space, recent years have seen a new rush of outside money and attention boost the industry. Private equity firms in particular noticed how profitable commercial fire protection companies are and started adding them to their portfolio of companies.
If you are the owner of a fire protection or security integration business today, it’s important to understand the role of private equity firms in the industry. Whether you plan to sell your business or not, this market change has likely already started to impact your business and will continue to as time passes. So, here’s a quick overview of what you need to know:
What Private Equity Firms Do and How They Impact the M&A Market
Private equity firms are investment management companies that partner with big groups of investors to make money by flipping businesses. They do this by pooling money from these investors to buy and sell businesses, often improving their operations and profitability before selling them. They aim to acquire, manage, and ultimately sell businesses that will generate a decent return.
Private equity firms operate in a few primary ways. They raise funds from institutional investors and high-net-worth individuals and use these funds to acquire companies. Once they have ownership in a company, these firms make strategic changes to improve the profitability of the business. This may include streamlining operations, improving management, or adding services. Or, they may simply provide the extra resources the business needs to keep growing. Their goal is to exit after a few years either by selling or through an initial public offering (IPO), making a profit for their investors.
The role of private equity firms in the mergers and acquisitions (M&A) market is significant. Their involvement can intensify competition, drive up prices, and shorten deal timelines. With more money available for investments, they can outbid strategic buyers or competitors, which can lead to an overall increase in M&A activity. When a private equity firm decides to exit its investment, that business is typically put back on the M&A market, creating a continuous cycle of acquisition and sale.
Fire Protection and Private Equity: The Latest Match Made in Heaven
This pattern has been obvious in the fire protection space over the last decade. Owners of fire protection companies went from receiving a letter or two every few months to having stacks of offer letters on their desks as more big players entered the space. Fire protection services are recurring, generating a steady stream of revenue that is very attractive to investors. They are required and were deemed “essential” even during the pandemic.
They are also constantly evolving. As new regulations are passed or existing ones are updated, fire protection companies are needed to keep businesses in compliance. This means that their services will always be in demand. The biggest obstacle facing many fire protection companies isn’t a lack of demand. Apart from their hiring needs, the biggest issue can be just how expensive it is to expand into new areas or services. Warehouses and service vehicles are not cheap. Neither is the equipment necessary when adding a service.
That is why private equity firms are the perfect partner for fire protection companies. They are able to provide the funding that the companies need to allow their growth to continue. The firms stabilize their investment portfolio by investing in an industry that provides recurring revenue. In return, they typically receive a majority stake in the company which allows them to have some control over the final decision of when and how to exit their investment. Meanwhile, the fire protection company is able to reach new levels of success.
What’s Ahead for Fire Protection Companies and Private Equity Firms?
The increasing competition in the fire protection acquisitions space means the industry is going to evolve a lot over the next few years. The amount of small to mid-level investors will slowly decrease as the biggest players continue to grow and acquire larger and larger targets. Areas previously not impacted by these bigger players will have to contend with them once they inevitably acquire a company in the region. Small fire protection companies will still be able to succeed, but their ability to pick up larger accounts may go down as more national providers enter the market.
This means that owners within the fire protection space should start thinking about how they want to handle these changes. If you own a fire protection company of any size, you will start to feel the impact of these shifts if you haven’t already. Talking with your fellow owners or managers about this and making a plan for how you will handle the increased competition or shifts in demand in your area will help you weather the changes better.
Catch the Attention of Today’s Big Buyers by Working with Rory Russell!
Private equity firms and other big buyers are actively looking for fire protection companies ready to sell. If your business is ready to take the next step, Rory Russell can help you navigate the M&A market.
As a veteran in the fire and security space, Rory specializes in helping fire protection companies find the right buyers for their unique needs and goals. He provides guidance and support throughout every stage of the process, dealing with the negotiations and logistics so you can focus on your team and family during this transition. Contact him today to get started.
Rory Russell
AFS Acquisition & Funding Services
888-551-0476
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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