By: Rory Russell, AFS Mergers & Acquisitions
As many owners of security companies are looking for ways to grow their business, horizontal integration is the fastest way to do so. By purchasing another company and combining it with your own, it gives your business opportunities that would otherwise not be available. The moment a contract is signed, you reduce your competition, expand your customer base, gain the ability to reach new markets, and improve your market power. If done correctly, your revenue could grow dramatically.
Within the security industry, horizontal integration can be especially advantageous for both sellers and buyers. With the right deal, both parties can benefit.
For Sellers
Horizontal integration can benefit those who wish to end a particular service or get out of the business altogether. For owners of highly specialized companies, being acquired or merged through horizontal integration can set you up for life financially or provide you with the liquid assets to invest elsewhere. Horizontal integration is often the preferred method to exit a business for a number of reasons. Horizontal integration allows you to:
- Gain a premium valuation for your business. A competitor will understand the true value that your company holds. They will already be familiar with the security industry and may be inclined to offer a higher purchase price simply to eliminate their competitive threat.
- Avoid a decline in profits. If you wait too long to sell and aren’t keeping up with the technological advancements as part of your offerings, your business may lose value. Rather than wait for your business to lag further and further behind competitors, it is ideal to cash out sooner.
- Liquidate your assets. If you have your sights set on a new business venture, horizontal integration can provide you with the finances to get a strong start in your newest area of expertise.
- Preserve your legacy and retire. Through horizontal integration, your business may continue to operate allowing your former employees to maintain their steady income and support their families. Meanwhile, you will have the finances to comfortably live out your retirement without the stress of owning a business in the security industry.
For Buyers
Those seeking to buy another company have much to gain, including new clients, products, and services. For example, your clients may be compelled to go elsewhere if your security company does not offer all the features or services they desire. Often times, clients are forced to split their business between multiple companies to get the protection they are seeking. In an ideal situation, you should have all the security solutions your clients are looking for. Additionally, by acquiring a specialized company, it helps you stay at the forefront of industry advancements. From 2025 to 2030, the security market is expected to grow with a compound annual growth rate of 7.6%, making now an ideal time to gain a strong foothold in the security industry.
When it comes to the alarm industry, horizontal integration can play a huge role in the growth of a company. Property owners, as an example, often seek the newest and greatest when it comes to security. They want cameras with the highest levels of technology, such as motion detection and night vision, along with a dedicated team available to deter intruders from breaking-in. Additionally, homeowners and building owners want to monitor dangerous temperatures, carbon monoxide, smoke, and other risks. Using horizontal integration strategically can help you provide clients with all the solutions they require.
Fire Alarm
If you want to offer your clients a new service such as the ability to install a new sprinkler system, you would need to train your team, purchase new tools and materials, and take on other ancillary costs, all of which is expensive and time-consuming. Through horizontal integration, you can add another company’s successful service to your company’s repertoire without worrying about all the logistics associated with ramping up a new service. If you don’t already offer fire alarm panels, emergency exit lights, kitchen suppression systems, or hazard fire suppression, be sure to consider horizontal integration.
Security Integration
As technology perpetually advances, it can be challenging for those in the security integration industry to keep up. Even with diligent research, you can still find your company lagging behind the competition. However, horizontal integration is one way to spur your research ahead and ensure your security integration company remains successful as existing technology evolves and new technology emerges. Acquiring another company allows you to merge the research of two companies.
For savvy business owners, horizontal integration can be the key to increased profits and long-term stability. Merge with a competitor or two your company will be better positioned. Likewise, you gain access to all the strategies, techniques, products, and services that make your newest acquisition successful.
ABOUT THE AUTHOR
For more than 20 years, Rory has been president and owner of Acquisition & Funding Services (AFS). As a top alarm company broker, he specializes in mergers, acquisitions, and financing for fire alarm companies, security companies, integration companies – representing over a billion dollars in transactions. Prio to founding AFS, Rory Russell owned and operated Empire Security, at the time the largest regional security company in the Northeast, handling $5 million per year in sales and