Beyond the Numbers: What the Stanley-Niscayah M&A Means for You
When security integrator Stanley Security Solutions announced plans last year to purchase fellow security integrator Niscayah, one of the largest global security firms in Europe and the U.S., for $1.2 billion, the move shook the very core of the security integrator space. The acquisition was large, to say the least: with it, Stanley Security Solutions increases its global presence, and its North American team greatly increased. There are more installation technicians, service specialists, branch employees, supervisors and team leaders. It created a much larger business, growing 30 percent in overall U.S. associates since January 2011.
Niscayah, based in Stockholm, Sweden, had sales of SEK 6.6 billion (U.S. $971 million) in 2010 and provided integrated security solutions, video surveillance and access control systems, fire and security systems and monitoring services to commercial, industrial, government, local, national and global customers throughout Europe and the United States. Its commercial customer markets included banks, retail, gas stations, utilities, transport and lodging and public sector companies. In particular, Niscayah is a unique and top tier systems integrator. It specializes not only in global enterprise security solutions but also provides a complete line of security services, such as monitoring, maintenance plans, program management, tests and inspections, and video cloud storage, to name a few. Thus, Niscayah will add significantly to Stanley’s installed base and recurring monthly revenue (RMR).
Data by Security’s sister publication SDM shows just how important the acquisition will be for Stanley. According to the 2011 SDM 100report, which ranks companies based on their RMR, Niscayah was listed at #12, while Stanley was listed at #5. Stanley claims that it is the second largest commercial security company in North America. There’s little doubt that the acquisition will move Stanley further up the list for 2012.
In addition, SDM’s Top Integrator Report for 2011, which ranks security integrators on annual revenue, based on contract electronic security projects for commercial, industrial, institutional, government and other non-residential markets, listed Stanley at #5 and Niscayah at #8.
The size of this particular M&A was huge, and it has had many in the industry talking for months. But is this good or bad news for security executives and the industry as a whole? While Stanley’s new global footprint can mean more consistent and constant service, could it also mean fewer choices and more cost? What will be the impact on your security operations?
According to Jeff Kessler, Managing Director of Imperial Capital, the impact on end user security executives may be minimal, at least short term. “The major reason why Stanley wanted this so much was while Niscayah was not very profitable, it did have excellent penetration into several vertical markets that Stanley was having a hard time getting into, including financial services, where companies like Diebold, ADT and Siemens really have a lock on the market,” Kessler says. “But as far as the end user suffering, I don’t think that it’s going to happen. The main demand on the part of security executives from integrators is for a trusted, technology and security and future proofing partner for them over a period of years. There are very few companies that they can do that,” he explains. “The customer knows that they can stay with them and trust them to bring in a knowledge base around product and other systems, but that they will also be an excellent consultant and a partner for years to come. Because ultimately, the integrator has to do a lot more than security; they have to provide a business process improvement that will create true ROI for not just the CSO, but increasingly, the CIO, and other C-level executives who are increasingly getting involved in the decision on what integrator to use and what products and solutions that integrator is bringing to the company.”
“When I look at the SDM 100, in terms of revenue, it drops off after #10 [on the list] and then really falls off a cliff after the #20 company,” Kessler explains. “There are certainly some excellent integrators in the number 10-20 positions that I think will be acquisition targets by the top 10 integrators who want expertise where they may be weak. So it is not necessarily bad news for the end user to see M&A in this business,” he says. “If I were to see the number 1 or 2 of the biggest companies buying each other, then I might be more concerned. And then I would start thinking about my pricing and my choices. To a lesser degree, that has not happened yet.”
A longer term impact may be different, however, he notes. “For the whole security industry, there is no company in the physical security integration industry that has all of the pieces of the puzzle together,” Kessler says. “We have seen a lot of personnel movement in places like ADT, Siemens, and UTC and Diebold, and that means that while those companies are getting closer to that high-value added capability that security executives expect, they are not quite there yet. It takes a while for these companies, particularly when they have legacy accounts, to implement new technologies that are out there, and that’s the greatest challenge, it’s the change in technology, particularly in areas like video management software, video intelligence at the edge, or PSIM. There is a lot of pressure on making sure that the integrator gets ‘Internet native,’ as opposed to the older integrator who is used to putting in coaxial cable.”
“You’ve heard the phrase: No one ever got fired for hiring IBM to do anything, right?” jokes Bill Bozeman, President & CEO of PSA Security Network, commenting on the impact of the M&A. The phrase from the 1970s implies that one goes with the safe-but-expensive choice. This in turn props up the “safe” company, allowing them to further eat up the competition. It is in essence a self-fulfilling prophecy, or at least a self-reinforcing feedback loop.
“There will always be security executives who prefer to do business with large systems integrators, simply because they feel that mitigates their risk,” Bozeman says. “And there will also be a percentage of security executives who feel that the larger companies struggle with consistency in delivery. The challenge for Stanley is the integration of all of its offices and ensuring that it is done well,” he notes.
The bottom line, says Bozeman, is while this particular acquisition won’t necessarily shrink the system integrator space and thus, product offerings and services for security executives, don’t take your eye off of it. “Historically, M&As in this space have not worked,” he says. “Roll ups have not worked well, because often you have multiple platforms that have to be melded together. It’s going to take some time for it to run efficiently. The good news for end users, and I credit Stanley for this one, is that Stanley chose to sign contracts with Niscayah’s senior management team. Many Niscayah senior management leaders are now on the new Stanley executive team. That was a smart move.”
It was also a personal and thorough process, says Brett Bontrager, Senior Vice President and Group Executive, Stanley Security Solutions. “[Acquisitions] are personal, in that one of the first steps we take is to get to know the employees, customers and suppliers. Our success in acquisitions has come from bringing talented people together who are focused on providing great service to the customer. The first step is really getting to know everyone’s capabilities and strengths. The acquisition process is also very thorough. We research every aspect of the acquired business from how they sell, install, service, monitor and even how they bill their customers. We research to determine not just the customer experience, but all of the nuances of the business as well. At the end of the day, we want the customer to experience a seamless transition, with no disruption to their business whatsoever.”
In a still down market, though, you have to ask: why make such a large acquisition now? New offices in new markets, Bontrager says. “The large number of locations is a great benefit to our customers because now they can do business with Stanley Security Solutions in more locations than prior to the acquisition. For example, after the Niscayah acquisition we are able to expand our reach to customers in New Mexico, the Carolinas and South Dakota... From a global perspective, Niscayah’s existing operations throughout Europe will give us a much larger global presence. Niscayah allowed the Stanley Security Solutions platform to expand in 12+ countries/regions where we did not have a security solutions presence.”
“The great part about bringing Niscayah and Stanley together is that we are very similar companies in the fact that we provide a high level of service and security solutions for customers,” adds Tony Byerly, President, Stanley CSS North America. “This gives the new Stanley Security Solutions a tremendous amount of additional resources, infrastructure and employees to provide even better service to our customers. In addition, both Niscayah and Stanley Security Solutions had some unique, custom systems solutions that we provided to our customers. This includes some very unique solution capabilities, such as our combined company will be the only company in the industry able to internally certify our technicians on both Lenel and Software House access platforms. Niscayah customers being introduced for the first time to Stanley Security Solutions’ transparency through online management tools offered by our suite of eServices and performance metrics through our National Account Performance Scorecard or Commercial Performance Scorecard are very excited about the new services available to them. Stanley Security Solutions customers are excited about the additional engineered solutions capabilities that are now available to them today from Niscayah’s expertise. Across the board, all customers will benefit from a significant increase in the number of associates dedicated to field project management, more Stanley in-house installation technicians, more local field offices to service them better and a 39 percent increase in program management support.”
The move also increases Stanley’s monitoring capabilities with additional monitoring centers across North America and Europe, Bontrager notes. “Microtec provides us with UL Canada listed monitoring and bilingual (English and French) monitoring capabilities. In North America, as an example, we are expanding our existing monitoring centers as well to enable this growth. For instance, at our PNC in Minneapolis, we are increasing workstation capacity by 54 percent, and we expect to double the size of our existing monitoring center in Montreal.”
As with any acquisition, Stanley is juggling integrating company platforms while keeping up its customer service and expertise. What are some of its customers saying?
“It’s been smooth sailing so far,” says Ed Levy, CSO at Thomson Reuters, who before the acquisition was using Niscayah services. “We are always looking for opportunities to save money as well as to increase efficiencies,” he explains. “The Stanley Scorecard brings more transparency to the relationship. I’m looking forward to using it.”
Andrew Harrison is already using it, having been a Stanley customer for years. Harrison is Associate Director of Safety and Security for BrightPoint North America, an Indianapolis-based provider of wireless device lifecycle services. “We are a historical Stanley customer. Everything we do touches Stanley’s service operations.”
Responsible for all security for the company’s U.S. offices, Harrison’s security operations are very standardized in the approach for security by region. “We try to use the same technology from location to location, and all security technology is integrated back to a central operations center in Indiana that supports those local facilities’ technology,” Harrison says.
As BrightPoint company expands, Harrison says he is looking forward to using Stanley, and now Niscayah, in global offices. “In some places, in the past, Stanley didn’t have a strong presence. Now they do. We hope, of course, that the acquisition will help reduce our costs, whether it is the amount of money we spend on guard services or a process change that results in savings to BrightPoint. Either way, we want to see reduced costs anywhere we can.”
Also in Indianapolis is J. Max Brenton, CPP, Director of Security Services and Crisis Management for Roche Diagnostics, and another long-time Stanley customer. His role includes asset protection, in addition to “a plethora of business and protective services,” he says. “With 4,500 people on our 83-acre campus, we’re a small city. We’re a professional security and prevention service within that city to protect personnel, product and property.
“We provide counsel and recommendations to staff, and handle complex, sensitive assignments within the investigations, HR, sales and legal departments,” he explains. “Externally we work with regulatory groups like the FDA, and local, state and federal law enforcement with our product that goes around the world. We try and recoup our losses when we are diverted, defrauded or counterfeited by interfacing with each business division partner to best provide them the security resources needed. We also have a liaison with law enforcement to protect our customer from product that may have been diverted or manipulated. We look out for our customers beyond guards, alarms and fences through our commitment to protect our product for our customers.
“We are constantly conscious of our budgetary restraints,” Brenton notes, “so we make the most of our partnerships. Stanley is one of them. I rely on them to help us develop certain technologies, one being the Stanley Commander PSIM system, which informs us on a need-to-know basis about an alarming system, pinpointing an alarm’s location in nanoseconds, and allows us to have a fast reaction protocol and emergency response. Beyond security interfacing, Stanley also partners with facilities fire safety and the safety, health and environment groups.”
Another reason that Brenton feels he’ll continue to receive value from the Stanley relationship, especially post-acquisition, is due to the impact of security technology after the events of 9/11. “We have more than 200 cameras on our campus and 5,000 alarms,” he says. “The impact is the technology that may not have been there before, so any portion of technology that helps us better serve our customers and employees or gives us the ability to better monitor and predict or prescribe reactions, we will look it to enhance our security.”
With the progression of security technology being so rapid, Brenton notes, a security operation can be outdated in six months. “For example, last year we converted 50 percent of our cameras from analog to digital. We understand that technology is evolving, and we have to keep up with it. Human nature says we are always going to need to protect something, and the ‘something’ here is the Roche brand.
“With Stanley, we have the willingness to negotiate and ask them to work with us to make improvements,” Brenton notes. “We have been with Stanley more than 20 years now. It has not been without issues, but Stanley’s focus on customer satisfaction and their collaborative approach has allowed us to strengthen our partnership. With Roche’s culture of accountability and customer service, Stanley fits our needs well as they share similar values. For any vendor to have a client relationship for 20 years is a success story in itself. I rely on my staff. We don’t have a large staff, but they are efficient and Stanley helps that efficiency by getting the job done for us.”
One of the discussions surrounding the acquisition, according to some reports, was the impact on traditional guarding services. Securitas/Niscayah was a major player in traditional guarding for enterprises, particularly in Europe. Many are asking: will current Securitas customers move to Stanley? What will happen with your guarding contracts in Europe?
It’s all good, says Tony Byerly, President, Stanley CSS North America. “Remote guarding has a lot of potential, and now we can offer our new customers our eVideo Guard Tour. In some cases, we have been able to replace the guard services for different customers.”
Byerly also commented that there are some end user customers in Europe, not necessarily in the US, where the contracts or integrated proposals will overlap, but that will be handled in time.
“The entire guard industry is in flux,” adds Kessler of Imperial Capital. “The growth of guards was there until the recession. It slowed not just because of the recession, but also because technology is beginning to intrude on the need for people [as guards]. The use of posted and managed and remote video is a big deal to all companies now, either managed from a location itself or remotely hosted. That is a complement to guards and it is a partial replacement, not a full replacement. The guarding business will remain important because end users always want to have human beings doing the guarding, but it does make it tougher for guarding companies to load up the end user with as many personnel as they can. A security guard is going to have to become more technologically capable, for example, to use handhelds. I think that you will see guard companies partnering with other companies to implement more technology. In the future, you may even see more acquisitions of specialized guard companies.
“The same thing happening with guards is happening to the security integrator,” he adds, “and that is the pressure from the end user to get smarter and provide guard services with a better IT education so that they can get better use of the technologies and integrate better with the security integrators. The bottom line is that guarding is a fluent space right now.”