Megamergers: benefit or pitfall?


Industry leans toward ‘benefit,’ but still debated

03/16/2016

Spencer Ives

YARMOUTH, Maine—Industry consolidation will accelerate this year with two megamergers—the Tyco/JCI deal and the ADT/Protection 1 merger—expected to close by the end of 2016. Does this activity help or hurt the industry? Respondents to Security Systems News’ latest news poll who said massive consolidation is good just barely edged out those who said these megadeals hurt the industry. Meanwhile, another group of respondents said they have other things to worry about.

Several respondents said that smaller companies will have opportunities for growth while ADT and Protection 1 are focused on their merger. “For the short- to mid-term I think the mergers will help us because of the normal problems and disruptions that come with such mergers,” Tracy Hendrix, president and CEO of Femac Security Solutions, wrote.

Three-quarters of respondents identified themselves as an integrator or installer. Fifteen percent said they work in monitoring, and 11 percent said their company manufactures security equipment. (Percentages do not add up to 100 as a result of rounding.)

“In my experience, the consolidator has to put so much effort into the assimilation process and finding where and how to gain synergies, that their customer service suffers. Those unhappy customers will go somewhere and often times, they go to a more traditional dealer specifically to get away from mega-alarm companies that have failed them from a customer service perspective,” another respondent wrote.

One manufacturer sees a benefit for his or her business, “As an OEM that owns a PSIM dashboard, … the turbulence created by M&A in the industry helps the more mature companies with sound partnerships and strategy; if Apollo doesn’t  manage the ADT acquisition well, we all have a great chance of convincing the larger of the ADT end users to re-evaluate the security platform they use.”

Just over half of respondents said their business won’t see any change as a result of ADT’s latest deal, while 22 percent predicted that ADT will be a stronger competitor.

Twenty-seven percent of respondents, including Sentry Security Solutions’ president and CEO Nick McAmis, said that talented professionals will be looking for places to work as a result of consolidation. “This affords smaller players, such as ourselves, the opportunity to provide those folks with a new home,” McAmis said.

Consolidation on this scale is good, according 41 percent of respondents. “It is easy to compete against a conglomerate. I used to compete against two or three companies—now only one,” said one reader.

Companies will be able to increase their brand recognition according to McAmis. “A merger of this size is good for our industry. It eliminates one more large name in the marketplace and broadens the ability of our brand to reach consumers that don’t want to be under the ADT banner.”

“I also think fewer big name competitors causes the consumer to shop ‘deeper’ and more local into the available service providers, so that’s good as well,” Rob Driscoll, general manager, monitoring services at Koorsen Fire & Security, wrote in.

The ADT deal is bad for one-third of respondents. “These merges will make these companies financially driven,” said one respondent. “Monopolies always cause trouble,” said another reader.

End users suffer from deals like these, according to one respondent. “Consolidation is never good for the end user … it create less competition.”

Twenty-six percent said they have other things to worry about. “The Johnson Controls merger is more dangerous [than ADT’s purchase and merger],” commented one reader.

Driscoll said each deal is different. “When ADT bought Brinks, that was not so good because Brinks had the best reputation for customer service and quality, so losing that (or at least diluting it) was not good for the industry. However, P1 is another excellent quality player, so I think this potentially has an upside for the industry.”

Everett Howard, owner and CEO at Howard Systems, shared a similar thought. “This will devalue the security market both in value and quality. We feel and have seen over the years that this type of merger causes the company to blanket the market with cheap installs. Cheap installs are low quality product and install. … This hurts small integrators in the beginning and if they can survive this burst, [they] will thrive.”

One reader pointed to a financial impact of the deal, “ADT’s valuation will affect multiples/valuation across the industry.”

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