The battle for G4S, which might reach fruition in December, has been waged over a period of nearly three months and has numerous implications going forward for the companies involved and the guarding industry on the whole.
It will be transformative if Allied Universal succeeds in its quest to acquire G4S after a 2½ year period that’s seen the former company purchase not only U.S. Security Associates (in July 2018) but also more than a dozen other security companies.
These have included manned guarding firms (Summit, SOS, Vinson, APG, Cypress, Point 2 Point, Shetler and S.E.B. Security), as well as technology-based firms (Securadyne, Midstate Security, Phoenix Systems & Services, Service Works International, and Advent Systems). During this time, private equity group fund Caisse de Depot et Placement du Quebec (CDPQ), became a major shareholder, making CDPQ and Warburg Pincus, Allied’s largest shareholders.
The G4S story began on September 30, when privately held Canadian firm Garda World launched an approximately $4 billion (190 pence per share) unsolicited, hostile takeover offer for the publicly held company. The G4S board rejected the offer as too low, but Garda proceeded to actively seek meetings with the largest G4S shareholders.
Then, on October 9, G4S shared the news that, “Allied Universal expressed interest in a possible offer for the company,” which confirmed an earlier Bloomberg News report that Allied was evaluating whether to pursue an acquisition.
On or about October 28, Allied Universal made a conditional offer at a reported 210 pence per share (approximately $4.4 billion) subject to a review of G4S’ books. That offer was subsequently rejected by G4S as too low. Meanwhile, U.S. regulatory permission was granted to Allied prior to an accepted offer.
On December 2, Bloomberg reported, “GardaWorld increased its hostile offer for G4S Plc to 3.68 billion pounds ($4.9 billion). Canada’s Garda said that its 235 pence-a-share cash offer is its final proposal, unless G4S gets a firm bid from someone else. To improve its chances, Garda slashed the investor acceptance threshold to proceed to 50% plus one share, from an earlier 90%. Garda also agreed a 770-million-pound support package with G4S’s pension trustees in the U.K.”
But on December 8, the G4S Board, according to Bloomberg, unanimously agreed to a 245-pence, $5.1 billion cash offer by Allied. While that deal looks likely to go through, Garda may still make a higher offer, however.
Industry impact of an Allied acquisition of G4S
If it moves forward, the acquisition would effectively cement Allied as, by far, the largest global security company. Based on revenue, Allied would be approximately 40% larger than its nearest competitor, Securitas. The approximate revenues for Allied from the G4S acquisition would total more than $18 billion, including any non-core services.
Allied also would have a staggering force of more than 750,000 employees globally, with more than 350,000 in the U.S. Allied would see U.S. manned guarding revenues of approximately $11 billion, constituting about 40% of an approximately $28 billion outsourced U.S. contract security market.
Garda and Prosegur would still be global players, but barring significant acquisitions, they will not have the size and reach of Allied or Securitas. It would be hard for other competitors to match the global reach of Allied and Securitas, as many large companies have already been acquired, and few mega-acquisition possibilities remain.
With its new size advantage, Allied would be able to leverage its enhanced market position to boost profit margin in markets, both domestically and globally, where there is limited competition; but, at the same time, retain an ability to price more aggressively in order to facilitate organic growth. Allied would have the capability to take jobs at very low profit margins, with a fixed cost-per-hour considerably less than the other companies.
To be sure, companies would be able to compete on a local and regional basis with the leaders, but with size comes some advantages. Allied and Securitas would have the ability to leverage a broad array of services in support of large enterprise security programs on a global basis.
The synergy savings would mean that an appreciable number of employees would be let go, some of whom will start smaller companies and others of whom will resurface at existing firms.
I foresee smaller companies being created at the local level thanks to this talented pool of people with industry experience.
There also would be opportunities for the integration and expansion of companies to both pick up management talent and garner new accounts where customers want more of a local touch than the mega-firms can provide. With the huge undertaking of consolidating operations, Allied could experience some account slippage as customers weigh the impact on service. Companies of all sizes would be aggressively looking to expand at Allied’s expense.
Over the past 10 or 15 years, larger customers have gone from using many different regional security vendors to just one or two as their purchasing departments have sought better pricing. However, with fewer large companies able to service their needs, larger customers might decide to reverse that trend and return to a region-by-region approach, to give themselves more choices and to gain some pricing leverage.
Lastly, it’s likely that private equity will continue forays into and within the guarding market, making a play to consolidate smaller to medium-sized companies. We expect deals to keep going at a good pace, as capital remains abundant and relatively cheap due to a low interest rate environment. It’s also likely that there will be a continued effort by companies to expand their security technology, and consulting operations, both to better compete in the marketplace and to obtain higher margins.
We will see in the near future how the final chapter of this story plays out.