Companies focused on security and protection services have shown growth and resiliency in part due to hybrid work environments. This has helped to make deals in products and services with fairly constant demand even more attractive.

“The sector is recession resilient and provides a recurring revenue dynamic – both of which appeal to investors,” says Aaron Franzheim, vice president at Meridian, an investment banking firm based in Seattle, which recently released a report detailing this trend.

The report focuses on security services and fire and safety protection, forecasting a compound annual growth rate of 3.6 percent for the sector in the period 2022 to 2024. The global market could reach $220 billion by 2024, Meridian says.

“It is a relatively fragmented market,” Franzheim says. Some recent deals include Building Industry Partners’ August acquisition of Endeavor Fire Protection and Carlyle’s majority stake in Sciens Building Solutions late last year.

Businesses more affected by macroeconomic trends have experienced a slowdown in M&A activity as PE firms look for more insulated assets to invest in, Meridian reports. However, M&A in the security and safety protection sector continues to grow nicely, with 28 deals through the first 10 months of 2022 vs 15 over the same period in 2021.

Theft due to Covid environment

Meridian cites an acceleration of property crime fueled by the Covid pandemic as one of the factors driving security surveillance spending and systems integration. Companies are demanding incremental access control, video security, and other automation products and services.

The result is higher valuations for those providing these products and services. Meridian has counted 28 M&A deals in security services as of October, compared to 15 in the comparable 2021 period.

“Most of these companies require a technical work force,” Franzheim says, further increasing the demand in a tight labor market. “Recruiting is important. Technicians are in demand; there’s movement between providers.”

Many of the factors driving M&A in security services are the same for activity in diversified industrial companies in general.

“There’s a lot of local or regional operating companies,” Franzheim says. Re-shoring is not an issue because they have often been nearby anyway, but integrators have been responding to changes in occupation trends in downtown office buildings and other places.

Franzheim cites residential HVAC as another active sector sharing many of the characteristics of security services and fire and safety protection. In August, Meridian advised CM Heating, an HVAC services provider in Everett, Washington, on its sale to Air Pros USA, enabling a highly rated local provider to tap into Air Pros’ multi-state operational and sales resources.

“There’s a lot of sentiment for more efficient systems,” says Franzheim of the HVAC activity. “These are long-term cycles.”

All of these sectors lend themselves to cross-selling and long-term contracts for servicing, which brings in highly desirable recurring revenue. PE firms are looking to help with roll-up strategies in verticals, including landscape management and commercial kitchen services, as well as fire and life safety and HVAC, according to the Meridian report.

“There’s a lot of activity,” says Franzheim. “PE strategies have been aggressive.”

Darrell Delamaide