Convergint Acquisitions Reshaping Integrator Market

By: IPVM Team, Published on Jan 24, 2018

The scale and number of Convergint's security integrator acquisitions are unprecedented.

In the past two years, Convergint has acquired 15 integrators at an IPVM estimated price of $400M+ USD, fueled by private equity partner KRG. Given their pace, we expect Convergint to be a $1 billion + company in the near future. But how will that change the industry?

Background: See our Competing Against Convergint post for integrator feedback on the company.

In this note, we examine the pace and impact of Convergint's acquisitions, provide feedback from Convergint executives, from key industry participants, concluding with an examination of what will happen both to the super-sized Convergint and to the rest of security integrators over the next 5 years.

*** ***** *** ****** of **********'* ******** ********** acquisitions *** *************.

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**********: *** ************ ******* ********** **** for ********** ******** ** the *******.

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Approaching $** ** *****

***** *** ****** ** previous ************, **** ******* growth, ********** *** ******* passing $*** ******* *******, even ****** *** **** recent ************ *** **** likely **** $* ******* in ****** ***** ****, particularly ** **** ******* other ******** ***********. **** makes **** ** ************* large *** ** *********** business.

******:********** **** **** **** do $* ******* ** revenue ** ****, ****** **** ** organic ****** *** ******* acquisitions.

Many **** ***** ************

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More **** ***** *** ************* ************ ******

******** ************ **** ******* additional ************* *********, ** well ** **** *********** in *** ******* **** of *** **, ********* to **********.

Not ******* *** *****-***** *********

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Not ********* **** ******** *********

******** ********* **** *** been ******** **** ** gutted ***** *** ***********, instead ********** *** **** the ******** ***** ****** in-tact, *** ****** **** generally *** ********* *** grow ***** *********. **** is ******* ** *** many ************* *******, ***** acquired ********** *** ***** stripped **** ************* ** a *** ** ****** expenses *** ******** *******. Taking **** ******** *** helped ********** **** * reputation ** * ********* organization ** ** ******** by, ***** ********* ********* do *** **** ** fear ****** **** **** the *********** ** *********.

Fallout ** ***** *********** ******

***** **** ********** ** integrators ******** ** ********** have ********* *** ******** things ** *** ***** their ******* **********, **** have **** **** **********'* rapid *********** **** *** lead ** ************. ** particular, **** **** **** Convergint's ********** **** *** be *** ******* ** acquiring ********* ** ***** ensure **** *** ********* they ** ******* *** properly ********** **** **********'* systems *** *********. **** has *** ** **** employees ******* *** ** the **** ** **** to **** *** ********** after *** *********** ******* completes.

Culture **********

********** ****** ********** ** their *******, **** ** emphasis ** ****** *** and *** ****** ********** too *********, ** ********* by *** ** *** co-founders:

********* ** **** ****** with ***** **** **********'* culture *** **** ** overall ********** ** *** company. ** *** **** time, **** ** *** integrators **** **** ********* have **** ****** **** enough ** **** *********** their *** ******** *** traditions, ***** *** *** always ********* **** **** Convergint's. **** ******* ***** to *** ******* **** the ****** ******* *** a *** ******** *** a ******* ** **********'* size, *** ****** **** commented **** *** ******* feels *********** *** ****** at *****. *********** * fun *** **** ******* is ********* *** *** company **** ***** **** a ***** ************ ***** all ********* *** *********** know **** *****, ** a ******* ******* *****-******** organization.

Non-Compete **********

** **** ** *** acquisition *******, ****** ** the ******** *********** *** required ** **** ***-******* agreements **** **********, ****** them **** ******** *** integration ********* ***** *** acquisition. ***** ***-******* ********** may **** **** *-**** terms, ***** ***** *********** keep ***** ************* / executives **** **** ******** rival *********** ***** *** 2020s.

Integrator ********* *******

** **** ****, **********'* acquisition ***** ***** ******** the ***** ** *********** businesses ** *******, ** their ******* ******** ** security *********** ************ ***** in ***** **********. *******, feedback ** **** ******** is **** ********** ** paying ******* *********** ****** for ***** ********* ******* of ************ *** ****** to **** "********", ***** helps ******** **********.

Difficult ** *******?

*******, *********** ** * region **** ******* **** Convergint, ** ***** ******* to ****** **** * region ****** ** **********, may **** ** **** difficult ** ******* *** larger ********* *** *** value **********'* **** *** scope. ***** **** ***** not **** ** ********** to ***** * ******* integration ********, ** *** reduce *** ***** *** of *** ****** *************, limiting ****** ********* *** these *********** ***********.

Opportunity *** ******* ***********?

**********'* ************ **** ** opportunities *** *** *********** to **** * **** in ***** *******. ***** larger ********* *** ***** working **** * ***** integrator **** *** ******* their ************ ********, **** customers ****** ** **** with ***** ********* ***** they *** **** ******** with ******** ******. **** creates ** *********** *** an ********** ** **** the ***** ** *** company ******** ** ********** as *** ***** "*** dog". ************, *** * year ***-******** ****** ** the ****** ** *** businesses ******** ** ********** help *** ******* ********** ensure ***** *********** ** the **** **** ** at ***** ******** ******* for *** **** * years.

Exit - ***?

********** ********* ***** *** no *****-**** ***** *** an ****. **** **** an ***** **** ******, an *** *** ** the **** ****** ****-**** outcome *** **********. ** companies ***** **** ** recoup ***** ********** *** take ***** ******* *** within * *-** **** time ****. **** *** be **** ** ******* their ********** ***** ** a ****** ** ****, selling *** ******* ** a ****** ************ ***** it ***** ** *************, or ****** *** ******* public. ** **********'* ****, the ******* ********* ** likely ** **** ** the ***** **** **** a ******* ****** ** PE ***** ***** **** afford **, *** ****** significant ********** ******, ****** a **** ** ******* PE **** ********. ******* it ** * ***** buyer ***** **** **** a *********** ******** ** the ****, ******* ******* industry ******, **** **, Honeywell, ***, ***. **** either ****** *** ******** industry, ** *** *** likely ** ** ** a ******** ** *** a ******* ****** **********. This ****** ** *** as * **** ****** outcome.

Impact **** **** * *****?

** *** *** ***** outcomes ********:

**** ****: ********** ** **** to ************ ******* *** merge *** ******** *********** across *** *****, ******** unprecedented ***** *** ********** that ** *********** / regional ********** *** *****. This ***** ****** ** a ************* ** ******** integrators, ******** *** *********** competitive *********** ** *** market, ********** *** ********* regional ***.

**** ****: ********** ********* ** merge *** ***** *********** while ******* *** ******* of ***** *********. ***** that ********, ************ ******** while **** ** ***** / ********** *** **** to ****** ******* ********* or *** ****** *******, turning ********** **** * Frankenstein **** *.*, ********** a *** ********** ** security ********** ******** ** grew ** ******* *******.

** ******* ** ** too ***** ** ** certain. *** *** ******** to **** *** ******* (1) *** **** ********** 'integrates' *** ***** *********** over *** **** *** years *** (*) **** type ** **** ******** Convergint ******* *** ******* or *** **** ******* their ******** ******* *** operations.

*** ***** ** *******, given **** **** **** already ******** *** ***** future *****, **** **** have, *** ****** ** worse, * *********** ****** on *** ******** *********** industry.

Vote / ****

Comments (13)

The one trend that is clearly in favor of Convergint is consolidation in corporations. To the extent that corporations continue to consolidate and regional firms are replaced by mega-corporations that make decisions on a national or global level, Convergint looks to do well.

However, more generally integrators struggle to scale. I think history shows that (here's looking at dysfunctional Tyco IS and ADT).

To be clear, Convergint may prove me wrong but it will definitely take at least 3 to 5 years for them to show how sustainable this all is. Right now, it's being fueled by the ambitions and generosity of its investors.

To me, the problem with scaling integrators is that integration is a service business. It depends far more on the quality, skill and drive of its individual core people (account managers, lead techs / SEs, etc.) than an overriding information system or structure. For example, a 20 to 50 person integrator can likely outexecute a 1000 person integrator for most local and regional projects, much like law firms, engineering firms, etc. tend to be small and led by talented, driven specialists. Will such talented people want to work for a large service provider? Typically they can make more money, have greater freedom and more personal recognition by being part of smaller firms. Any integrators particularly agree or disagree with that?

In order for the Building Automation market to develop into a Building Internet of Things (BIoT) it requires a complete overhaul of how the contractual procedures from design to install building services is carried out. This will need System Integrators to have the skills to bring together the control and management of all the services and probably more important data in a building for it to ultimately fly on auto pilot.

In the enterprise market there are only a few companies that have both the skills and financial strength to convince buyers that they can deliver. They are the major conglomerates and sadly they are not independent

If we want independent System Integrators to deliver (BIoT) then we are going to need a lot more companies of the ilk of Convergint Technologies.   

 

Allan McHale

Memoori Research AB

That's an interesting proposal. My view is that the BMS integrators will end up owning the smart building, and it will not be easy for a security integrator to build the deep skill set required to take on the mechanical systems.  I do agree that the way buildings are specified and built today makes integrated automation difficult, and I can tell you with authority that consulting engineers are hard at work on the process but concerned about who will be able to do the work.

The challenge with any acquisitions is how quickly an entrepreneur acquired business and past success can be emulated in a corporate environment.  Typically, the business practice and risk aversion of corporate environment will slow down a fast-moving newly acquired company.  In short, a 250 HP engine can make a bass boat fly on the water but has little impact hung on the back of a Battle ship - conversely the hulls weight of a battleship would sink a bass boat.

How quickly Convergint can integrate these small to medium businesses into the fold and make it profitable is a challenge.  Pull the financial backing out and live off pure profit would be a challenge as many of these small to medium companies have back office support that is redundant to the current infrastructure of Convergint.  Typically, this is the first area to be consolidated. 

But Convergint in my prime/sub and sub/prime relationship with them is stacked with talent – truly stacked with talent.  Recently in the DC area they purchased two of the premier medium size integrators adding to the talent and delivery as well as a loyal customer base.   

Add the consolidation of JCI /TYCO and the questionable tax inversion they performed by hiding in Ireland which did not make them look favorable in the Federal mind.  Soon you will see Convergint not just winning projects but picking apart JCI / TYCO programs on the Federal side and commercial side with national customers.   

So, at the very least Convergint will pay taxes on the profit – has a deep bench of talent and has nationwide delivery, past performance with strong vendor relationships. When price is not a deciding factor and a weighted response is they will be hard to beat.

They take the leash off and they will be the dominate player in the integration market. They keep the leash on or worse tighten it and they will be talent rich - yet top heavy for the current revenue.       

Fortune 500 and larger companies will welcome another large player.  Below the big boys companies will welcome them but will expect smaller company attention to service and detail.  If the aquired companies are allowed to continue their successful ways the only issues will be the newly aquired companies competing against one another.

Convergint acquired Astrec, an integrator in France. French financial records show Astrec is a smaller integrator, with less than $2 million USD in annual revenue and ~10 employees.

Convergint noted to IPVM that:

Astrec fits a particular category of our acquisition strategy. It offers us reach into a country through a very strong integrator with an excellent service reputation and the ability to support our global accounts.  There is a strong cultural alignment between our two organizations. Astrec has been a partner for Convergint over many years and supports the key technologies that many of our global customers use.  

Figured it wasn't worth it's own a thread, but with UTC announcing they are exploring the sale of Chubb, I heard a rumour Convergint is in the running to purchase them?

Anyone else heard this rumour? Seems a little odd, given UTC supposedly wants about $3 Billion, and Convergint is like a third that size.

I'm sure it's just rumours and means nothing, but thought it was worth asking around here.

NOTICE: This comment has been moved to its own discussion: UTC Considering Selling Chubb, Would Convergint Purchase Them?

Convergint has acquired another half dozen integrators in 2018 and says in 2019 that they will add 'companies on the software and development side of things', in an SSN interview.

Hopefully all of their “international” experience will help to re-set US business models… doing business without on-demand support of local police. For example, the entire country of France went VR-Verified Response over decade ago. Most of the US is now slow or no police response to majority of calls from private monitoring firms, like ADT, ASCMA/Monitronics and Convergint. The “bigger” problem in the US could be the consequences from “non-disclosure” with millions of customers… aka promoting and selling false security.

Lee, how does this relate to Convergint? You're a bit of a broken record and it's quite a stretch to emphasize the police response issue to a company that is primarily an enterprise integrator not an alarm monitoring provider.

John, thanks for questioning the “broken record”. I wish more stakeholders would do the same.

You said... “…it's quite a stretch to emphasize the police response issue to a company that is primarily an enterprise integrator not an alarm monitoring provider.”

The private security industry has become wildly fragmented. And the term “integrator” is becoming equally fragmented. Convergint is one of those fragments. Maybe the new term of “Interoperability” applies best for Convergent. You are correct, regardless of the terminology, for this discussion, it was not appropriate for me to group Convergint with other security monitoring integrators like ADT and ASCMA/Monitronics. When life or property is threatened, site response is necessary. Even the professionals at Convergint, after they harden the target, recommend the appropriate resources for help, different from country to country. Another strength of their business model… to bet on their local key people, and understand local legislation.

Slowdown or temporary pause?

Convergint today made its first acquisition in 6 months and only 3rd so far in 2019, compared to 9 in 2018 (see Convergint's own acquisition directory). Convergint today acquired LSSI, a Virginia/Maryland integrator.

In December 2019, Convergint told SSN they would do $1 billion revenue ("In 2018, we will eclipse a billion dollars for the first time") though their Inc 5000 vetted report says just under - at $990.6 million).

$990 million is still a very high figure for an integrator, though Convergint has discussed a $2 billion target. If they keep on acquiring integrators, it will not be that hard but if this is not just a temporary slowdown, it could be an issue.

IPVM asked Convergint about their acquisition pace. They responded generally saying 'more to come', though, how many more is certainly a key question in seeing how far and big they get.

There just are not that many 10mm+ Integrators left on the market looking to exit. I would expect some in the next 5 years with baby boomers retiring, but a lot of those listings aren’t fast growing companies. SDM or SSI did an article on this and the industry consolidation. No idea how Convergint hits 2bb soon without rolling up IT service providers or large AV contractors outside of the traditional security space.

Not to mention the top part of the market is also more likely to be sold direct by a manufacturer cutting out a swath of the integrator revenue or just low margin. It’s sort of like the casino/gaming market. Large numbers but low teens/single digit margins. Not sure how you scale off of that. The sweet spot in my opinion in this industry is still in the medium sized business/project— 25k-250k. Which favors the regional/super regional normally.

Rather than focusing so much on Convergint I would be curious to hear from people like Pat Egan how his roll-up is going.. because that might be a better canary in the coal mine of the strategy in today’s market.

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