but but but has your local Convergint office got any clue or is it just the trunkslammer in your 'hood that finally sold out because the old folks running the thing wanted to retire? That's all well and good the stockholders are doing a happydance but how will this help the customers procure physical security solutions that dont' suck? (Not all the Convergint acquisitions are bad, there are some jewels in there. But there are also some zingers...)
As long as Convergint can continue to build value, be it through acquisition or through organic growth.
That's what I am trying to understand - how are they building value? In other words, how is Convergint more valuable after paying a premium for each of these individual integrators? Are there 'synergies'? Or are there 'economies of scale'? Is there some form of 'network effect'?
This is a tale that many integrator's should read with a smile.
Yes, if they can get Convergint to buy them out! :)
This is not the first ever integrator roll-up. Red Hawk did this, at a smaller scale, a decade ago. I've heard other execs in various other integration industries talk about financier driven roll-ups. I am not doubting there is money to be made. I am doubting anyone can operationally, over a long-term, run a giant integrator effectively.
In the short term, Convergint will win large and complex transportation, municipal and large entity projects due to buyers' comfort in dealing with a well funded entity comprised of successful integrators. In the long term, as the participants that built the individual integrators depart or lose interest, the quality and responsiveness of Convergint's individual offices may suffer. Similar to Siemens where some regional offices compete effectively and others act as general contractors with very little technical depth.
The answer to your first question has been answered by other comments including yours
The value that they are building is the larger coverage of their offerings
whereas larger corporate/government entities will more readily give them projects on a larger more national and international scale
The idea of synergies and economies of scale will be determined by their management's abilities to really bring that all together and be efficient and agile to take advantage of that
You look at a lot of the recent mergers and acquisitions on the manufacturer side
There are a few that have been able to really merge the businesses together to create real value and then there are those that struggle and keep the entities separate under one corporate umbrella
The real details will come out down the road if they were in fact able to accomplish this
as far as why integrator's should be encouraged by this news
Its not so much about Convergint buying them
Of course if the right offer was extended, most integrator's would not refuse
I think its more about the fact that when someone builds a business
They look toward the largest most successful entity in their field and look upon them as the "where can we go" it is encouraging to see this type of success is the point i am trying to make. Bottom line is it all looks good on paper now
The real question will remain, in a year or two from now
Will they crash and burn (hopefully not) due to the premiums paid on their acquisitions
Or will they really manage their business well and bring out the value and build on it
I have no real knowledge here, just expressing my opinion for what its worth
I enjoy reading your articles John, keep up the good work !!
“Convergint is a leader in its industry, with a unique culture and a longstanding track record of fostering the development of its colleagues and delivering outstanding service to its customers. We are excited to partner with the Convergint management team and look forward to supporting the company in its next phase of growth,” said Matt Cwiertnia, Partner and Co-Head of North American Private Equity at Ares Management. [emphasis added]
You're not going to be invited to Convergint's next Caddyshack screening...
I think calling it an 'illusion' is rather strong. I take it more as a metaphor since it is, e.g., not an actual partnership via IRS rules, but it is meant to imply that Ares is standing behind management's approach, which I think is the case, certainly for now and as long as Convergint delivers on the agreed up plan.