Guardian Alarm: Successful Merger and Acquisition Strategy Example


John Robuck
Managing Director, Capital One Security Finance

As seen in SecurityInfoWatch.com.

At Capital One we work hard to connect with our clients on a regular basis about the trends affecting specific industries and the overall economy. Recently we had a conversation with Tom Erhardt, President and COO at Guardian Alarm, on a topic that's reshaping the security industry: M&A. We've been proud to work with Guardian as they continue expanding their business through M↦A, and they are a great example of how building a successful strategy, listening to your customers, and enlisting the right partners can lead to sustainable growth. Below is an overview of our conversation…

For almost 90 years, Guardian Alarm has prospered by following a time-tested growth strategy: it expands into select markets by purchasing a series of small firms and growing their business organically. Since Milton Pierce founded the company in 1930, Guardian has spread from its Detroit base to Cleveland, Toledo, Cincinnati, and other Ohio cities. Today, Guardian provides a comprehensive suite of security solutions to over 120,000 residential and commercial customers, as well as medical monitoring services to over 45,000 customers.

"M&A is very important to us because it allows Guardian to leverage company assets to drive investor value," said Erhardt. "It is a significant piece of the company's plan to double in size over the next four to five years."

Successful mergers require similar values

As Guardian's experience demonstrates, M&A is an excellent tool for moving into new security or medical monitoring territories. Greenfield expansion requires an upfront investment and the cash to support the new operation until RMR reaches the break-even point. By contrast, acquisition produces an immediate RMR boost while delivering such advantages as in-depth knowledge of local markets and knowledgeable employees. Furthermore, by focusing its M&A activities on distinct geographic areas, Guardian has been able to consolidate duplicative services and gain economies of scale.

Guardian increases the likelihood that its acquisitions will be successful by narrowing the field to firms with similar values and culture. For most of its history, Guardian has been a family-owned business, and it looks for family-owned businesses to acquire. "We seek companies whose vision and history reflect a commitment to delivering industry-leading service and to maximizing customer satisfaction at every level," Erhardt said. The low attrition rates and high customer engagement typical of family-owned companies makes them excellent prospects for acquisition, while their shared values make them easier to absorb.

A representative sampling of the companies Guardian acquired over the last decade illustrates the company’s preference for purchasing family-owned businesses. In Ohio, they include ADS Security Systems with between 800 to 1,000 accounts and Barco Security Services with 3,000 accounts.

Similarly, shared values also provide assurance for companies seeking an acquisition partner. "Owners want to be assured that their customers will be transitioned to a service-focused company that emphasizes customer satisfaction as its top priority," said Erhardt. "They also want to partner with a company who will value their existing sales, installation, and service staff."

Guardian's ability to fulfill these expectations gives it a competitive advantage over other companies vying for the acquisition. "If we can successfully communicate to a potential target that 'our values are your values,' it goes a long way in ensuring that our offer will be accepted," he said.

As it looks ahead to ramping up its M&A activity, Guardian will benefit from the experience of its equity owners—a joint venture of Certares and Vanwall Holdings—and our experience as a lender. "They understand our business space and the risks that come with it," Erhardt said. "They have been instrumental in advancing our goals by helping us to form a clear strategy and by putting in place the tools and incentives to be successful."

M&A goes hand-in-hand with organic growth

One of the misconceptions about M&A is that it is incompatible with organic growth. In fact, a firm with an aggressive M&A strategy like Guardian must also excel at organic growth if its investments are to pay off. Erhardt points to a number of areas that have been critical enabling Guardian to meet its organic growth targets.

Technology is a major driver of growth in the security sector, and Guardian prides itself on being an industry leader in making new technology available to its customers. Investment in technology on its own, though, is not enough. "Training is a vital part of the equation," he said. "Ultimately, growth can be maximized only when the service and support components are as good or better than the technology itself."

Equally important is listening to the voice of the customer. "It is crucial that we continue to talk to our customers as much as possible," said Erhardt. "Our growth strategy depends on effective communication and service delivery." He quoted the company's founder, Milton Pierce to underline this point: "Give the customers good service, take good care of them, and they will take care of you."