James Rothstein Speaks On Investing in Integrators
After two decades as an executive at the industry's largest distributors, including ADI and Anixter, James Rothstein is now an operating partner at Lee Equity, investing in security integrators.
Private equity firms investing in integrators is a major trend, e.g., ADT selling its commercial business to a PE firm this month and Pavion rolling up 19 integrators and counting.
We spoke with Rothstein to better understand the two deals he has done so far (Unlimited Technology and IST), his firm's ambitions in growing and acquiring more integrators, and the broader trend of integrators being rolled up, such as ADT Commercial, Convergint, and Pavion.
James *********'* **********
********* ********* *** ********** *** ********** in ******** ******** ************ ********** *** investing ** *** ******** ** ****, including *** ********** **** *** ******** distribution **********-**, ***** **** ******* ****** *** tenure *** *** ********** **** ** Anixter:
* ******* ** ************* *** ************ and **** ** ********** ********* *** former *** ********** *** * ******* equity **** ***** ** ***** ***. We ****** * ******* ****** ***-**, which *** * ************ ******** *** we ****** **** **** ****.
** **** **** **** ***** $*** million ** ******* ** $*** ******* in **** * ***** **** ******* acquisition **** ***********.
********* ********* **** **** ********* *** successfully ****** ** ******* ******:
** *** **** **** ******* ****** partners. *** ** *** ***** ********* private ****** ******** ** ** ****. That **** ** *** ****** *** the ***** ** ******* **** ******* equity. ** *** * **** **** experience, *** ******, * **** ********* [one] ******* ** ******* ** ***** people *** *** *** ****** *** really **** **** **** ** *** team.
***** ****** * ****** **** *******, then *****, ********* **** ** *** private ****** ****:
*** **** ******* ****** ** ***** 9 ***** ***, *** **** ** the ****** *** **** **** ** at ***-** *** ***** ****** **** within *******/*****. ** *** * ****** rewarding **********. * ****** **** **** for ******** * ***** *** *** their ****** ******** ********, ***** *** an **** $* ******* ****** ******** and **** * ***** **********, *** I ****** ***** *** **** ** investing ** **********, ******* **********, *** had * **** ********** **** ******* equity.
***** ******** *****, ********* ********** ** wanted ** ** "********* ***************" *** thus **** *** ****.
* ****** ** ** ********* *************** again, *** **** ***** ****** ** say ***** *** ***** ****** *** I **** ***** ************* *****. **** wanted ** ** ********* *************** *****. Wesco ** * ***** *******.
*****'* ************ ** ******* *** **** well, ****** ********,*****'* ***** *******, ****** ** ****** ** *** electrical & ********** ********* ********.
Lee ****** ********' ********** ** *** *********** **********
********* ******** ** *** ********** ** Lee ****** ******** -********* ****************(*** ** *** ** ********* ********** company) *** *** *** ******** ******** is *** *** ******* ********** ** the **.
*** *'* **** *** ****** ********. I'm ** ********* ******* *** **** Lee, ** ************ ****** ** *** integration ******** ******* ***********. ** **** two ****** ***** ************, *** *************** ************* *** ***** *********.
********* ********** [****** ******] *** ********* but ** **** **** *** ****** the *******. *** ** **** ******* in *** *** ******** *** **** heavy ** *** *** ********. **** great **********, *** **'** ****** **** management **** *** ** *** *********** doing **** ** ********* ***** **********. It ***** ** ********* ***** *** 6, ** * ******* ********** ** the *******. ** ******, *****'* * huge *** ******* * *** *, but **'** *** ** *** ****** independent ********* ***.
** ******** ********* **********'* ****** ******* to ** $***+ *******, ***** ** Unlimited ********** ********* $**+ ******* *** IST $**+ ******* *****'* **** ******, ****** *** *****.
** * ***** ****** ** ********* Technology, ********* **** ** ** ******* with *** ********** ****.
** **** ** ********. * ***** a *** ** **** ******* **** the **** *** *** ********** ****. I'm ** *** ***** ** **** company. *'* ** ****** ***** ******.
Exiting *****
***** *********'* **** ** ** ********* in ********* ** *** "*** ******** shareholder *****," ** ****** **** *** focus ** ** ****** ***** ** the ******** ** *** ******.
* ***** **** ******* ****** ***** will *** ****'** **** **** **** plan ** *** *** ******** ***** for *** ************. *** **** ***** mean * *** ** ********* ******. It ***** **** ********* ****** ** runway *** ********* *** ********* ******* of *** ********.
**** **'** ****** ******* ** *** is *** ** ** *** ***** in *** ********? *** ** ** bring ** *** **** ******? *** do ** ***** *** ********** ******** and ******** *** **** ** **** businesses?
********* **** **** *** **** **** to ***** *** ******** *********** ******** into * "*****-***** *******." **** ** eventually *****, ** **** ******** *** shareholder ***** *** ***** ***********, ********* the ********* ******* **********.
** **** ** *** ****** ** terms ** ********** **** ******** *** adding *** **** ***** *** ******* the ******* ***** *** **** *** road **** ****.Our **** ** ** ****** ******** ** ***** * ***** ***** *******. [Emphasis added]
********* *** **** ** ** ** to ******** *** *********** ***** *** everyone, ********* *** ******, ********* ****** management.
Future ********** *****
***** ************ ******* *** ********* ********** targets ** ******** ***********, ********* ********** prioritizing ******* **** ******** ** ********** and ****** ********* ** ******** ********* and **********.
* **** ***** * *** ** time ******** **** *** ******* ** other *********** ** *** ** ** our ********. *** **'** ****, *'* sure ********'* ***** ** ***** *** way, ** **** *** ****** **** quality ******.
**'* *** ***** ********. **'* ***** quality *** ** *** ** ** really *** ******* *** ******** ********* withcertain **** *** ******* ******** ********* *** **** ********** *****. [Emphasis added]
** **** *** ********* **** ****** deep *********, *** ****, ************* ************.
********* ********* *** ********* *** ********* in ***-**** *********** ******* ** *** larger ** ******* **** *** *** investment ******** ** ******* ******* **** quantity *** ****** **** **** ****** on *****.
** **** **** ** * ******* than ******** ********. ***** *** * lot ** ***** ** ****** **. They **** *****'* ***** *** *** strategy. ** **** ** ** * little *** **** ******* ** *** qualities, ***good ***-****.
********* **'* ** **** ****** ** integrate * ****** ******* ** ** is * ******* *******. [** **** to] **** ***** ************, *** * little *** ****** **** *** **** depth ** ******* ********* **** ** think *** ******.
********* **** ********** ** *** *** criteria **** ********* ** *** ******** integration ********** - ****** *** *******, and *** *** ********** ****** ** a ******** *** *** *** ****'* existing **********.
* *** ** ** *** ** is ***** *** ******, *** *** culture. **'* **** **** **** **. Culture *** *** ****** *** ********* important. ** [*** **] **** * culture ** *** ******** ********.
*****'** ** **** ************ ** **** from **. ****'* ***** * ***** a *** ** ** ****. * also **** ** **** ***** ****** in *** ***** **********, ************* ***. I'm ****** ******* *** ************* ** that **** ** ****.
*** ****** ********' **** ** **** investment ****** ** ** ** * national ******** *********** ******** *** * roll-up ******** ***** ***** ********** ** choosing ********** *******, ********* ****.
** ***** ********* **** ** **** to ** * ******** ******. ***** not ** *** ** ******, *** certainly ** **********, ******* * *****. It's * *** *** ***** ********. It's * ******* **** ** ********, but ** ** **** ********** ***** this. [** **** **] **** ************ about *** **** ** ********* ** require.
M&A **** ******
********* ********* **** ** ****** *****, most ************ ** *********** **** ** private ****** *****. ** ***** ******* acquisitions **** ******** ** *** ******** recently.
*****'* **** * *** ** ******** over *** **** ****** ** *****, mostly **-****** [***********].
**'** ** *********** ** *** ***** ADT *********** ***** *** ** *** and *** *** **-*****. ****'** ** a ********, * *******, *** ********* growth *** **** *** **** ***** players **** *** **** **********, **** Pavion ** **** ********** *** **** made ** *********** ** ***.
***** *&* ********** ** *** ******** integration ***** **** *** **** ****** this ****, **** ***** *** ***** "actively ******* *** *******," ********* ****.
*****'* ***** ***** ** ** * decent ****** ** ******** ****** *** integration *****; *&* ******** *******. **** year *** *** **** ** ******, obviously *** ** ******** ***** *** some ***** *******, ** ****, * little ****** ** ***** ** ********, but * ***** ***** *** ****as **** ***** *** ********* ******** ******* ** *******. [Emphasis added]
********* **** ******* **** *** ********** about **** *****, ********** **** ********** will ** ***** *** ****** **** of **** ****.
* ***** ***** *** **** ****-** vehicles, **** ***'** *** ****** ** the ****** ****, *** ********* ** next ****, **** ** *** *********** side *** ************* **** *** **********. I ***** *****'* ***** ***** ** be * *** ** ********. * think ** **** ****** * ****** bit **** ****, [******** **] ******** rates.
Valuation ************
*** *** ******** ********* ******** **** valuing * ******** *********** ******** *** recurring *******, *********** ******* *******, *** cybersecurity *********, ********* ****.
*** ********* **** **** *** ***** elements **** ** **** ******* ****** multiples - ********* *******, ******* **'* in *** **** ** ******* ** maintenance, **********, ** ***** ********, [** important ** **] **** * ************ amount ** ********* ******* ** *** overall ******* ****** ** *** ********.
* ***** *** ********* **** *** better *********** ** ***** ******* *****, multiples **** ** ****** *** ***** kinds ** *********.
************* ** **** ********* *** *** either *** ********** *** **** *****, or **** **** ****** **** ************ with ***** *** **** **** ********* in ************* **** ** **'* ** important **** ** *** ********.
** **** ************, *** ****** * business *** *** **** ******** ** has, *** ****** *** ********* ******** tends ** **. *******, ********* **** the ***** ************ *** **** ** critical ** ********** ***'* ********.
**** **'* **** *** *******. *** larger [*********** *** ****] ****** [**] have ****** *********, *** **** ******* companies **** **** *** ***** ***** elements ** ***** ******** **** **** come ** ****** *********.
Public ********* ******* **** *** *****
********* **** ** ******* ** *** more *********** **** ****** *********, ****** to *** ******** ****** *********** ** private ********.
** *****'* **** * *** ** acquisition ******** **** *** ****** ********* strategics. **** ** *** *********** ******** has ****, ****** *** ** ** has ****, **-****** ********* *** **** some ****** [***********], **** ********** *** PE-backed *********.
* ***** **'* ****** **** **'** see **** **** ******** **** **** of ***** ****** ******* ********** ****** the *********** *****.
Bigger ******** ******* ** ***********
********** ** **** ********** ****-** ********, Rothstein ********* *** **** ** *** "big *****," ********* ************* **** ** Bosch, *** ****** ** ******* ** integrators:
* ****** ** ***** **** **** some ********** ****-***. ** *** **** side *** ** *** ******** ******* integration ****, ***** **** **** **** roll-ups. ***** *** * ****** ** names ** *** ********. ***** *** larger *******, *** * ***** ****'** be ******.
** *** ********* **** *****. [** is] * ****** *** ********* ****** because ** ***** *******, **** *****'* been ** ****** ** ******* ***********, it *** **** ****** ** * manufacturer.
** *****, ********* ********* *****'* ********* for ****** *** *** *********** ******** in ***** ****** **** ******** ****** efficiency *** ******* ** *** ***** where *****'* ******* *** ******* ** compete **** *** *******.
* ***** ****'** ******** ********* ** that ****'** ******* ** **** **** in *** ******** ******* *** ****** efficiency ** **** ** ******** *** certainly **** * *** *********** ******** in *******.
* ***** * *** ** ***** customers. **** **** ** ********** **** strategy ******* **** ***'* **** ** compete **** ***** **** ***** ********.
**** ****,***** ******** **************** *** ***** ******** *********** ********.
********* ******** *** **** ******* ***** names **** **** **** ****** ** the *****, ********* ***, *******, *** Allied *********, *** ****.
******* ** *** **** ** **** with *** ***** ** *** ***** and **** *** ** *******, *** the *** *****. *** *** **** active *** ****** ********* *** **** active *** ******** ** *********** **** of ***** **********.
***** *** ****** ******** **** *** in *****, *** ** *****'* **** tons ** *********** ******** *****. ** guess ** **** **'** *** **** of ****. ******* ********, *** * think ** *** ***** ****'** ******** to ** **** ******.
**'* **** *********** **** * ***** of **** **** *** ***** **** in *** *****, *** ****** ** acquisitions, *** *****'* **** *** ** they ****** **.
Security ************ ********* - ***** ** ***-**********
***** **** ** *** ****** ** security ************, ********* ******** **** ******** regarding **** ****** ***** *******. ** stated **** ************' *** ** ****** value **** ** ***-*********** ******* *** pre-work ************, ***** *** **** *********** technicians **** ** **-**** *************.
*** ************ ******* ***** * ****** important **** ** *** ******** *** will ******** ** ** ****** ****.
* ***** **** ** *** ************ can *** **** ***** ** ***-*********** cameras *** ***** ***-**** ************.
*********** *** *** **** ********* ***** to **** *****. ****'* *** **** precious *****. ** ** * *********** can ** * *** ** **** to ***-******* *** *** *** ******** ready *** *** ********** ** ** their *****, *** **** **** ** to *** ******** *** **** *** technician *** ***** **% **** **** at *** ************. ****'* **** *****.
******* ***-************ ****, ********* **** ********* that ****** ************* ********* *** ******** are ******** *********** ***** ****.
***** ****** **** ****** * ***** layer, *** ***** ******* *** ********* else * *********** *** **.
** *** ** *********** ******** ************ like *** *** *****/*******, ** ************ and ********** ****** ********* *** **** dabbling **** *** ***** ********, ********* said.
***** *** *** *** ****** ****** players, *************, *** **** **** ** *** IT ************,**** ****, *** ****** [*****] **** *** beginning ** **** * **** *********** role.
**** **** * ****** *** ** a ********* *****, ** **'** ** interesting ** *** ** **** ** all ** ** *** ******** ***** or ***. ****'* **** **** *** in *** ***** ** ******** *** then ***** *** *********** *** **** the ***** **** *******.
********* ***-**** ****** ********, ********* **** he ******* **** ****** *** ****** for ******** ********/******** ** *** ********** space **** ** *** *********** *****.
**'** ** *********** ** *** ** they **** ** ****'* ********* ****'** interested **.* ***** *** ********** ***** in ******** ********* ** **** **** strong ******.
*********** ******** ** **** ***** *** at ** **** * ****. ********** there *** * *** ** ********. We're ***** ** ******** ** *** very ****** ******** ** *** ********** space.
*******
**** ** ********** ** *** *** these ******* ****-***, **** *********'* **** to **********, ** ******, ** ****-**-** independent *** **********, **** *******, ** many ********* *** ******** * ******* approach, ***** ****** *** ******** ** whether *** **** ***** *** ******** the **** ******** **** * ****** amount ** *********** ******** *********.
**** ****** *** ****** *******… ** they ********** *** ******* ******** ** this ****** ********** ******* ** “****** Monitoring”.**** ** ** ******* **** ****** emergency **********, ******, ****, *** *** a **** ********* ** *** ***** business ******.** *** *** **** “******/******* ************” is *********, *** ******* ******** ****** that *** *** ********** **,***,***+ *** customers ** ***** *******, **** ******** too.*** *** ******* = *** *** opportunity.
**** *********** *** *********** *******
***** ** ** ********* ****** ** our ******** *** ** ******* **** guy
* **** *** *** *** **** much ******* ** ***** *********
*** ***** ** * **** **********/** group ** ************ ****** ** **********. The ***** *** (****** *** *****-******** without *********, ** *** ***** ***) has **** ***** ** ** * pretty ****** *** ** ***** **** companies ** **** ********.
**** ***** ****- *********** *** **** significant ******** (** **** *****) *** this ***** ***** ** ** ***** a **** ****** *** **** **** at **** **** **** *'** ****.