Securitas Buys Top U.S. Security Firms

Securitas AB, the Stockholm-based security firm, has bought up two of the top three U.S. detective and guard companies in the last two years. In early August, the company acquired Burns International Services Corp. in Chicago for $650 million, including the assumption of $193 million in debt. The transaction will be structured as a cash tender offer for all Burns shares, followed by a cash merger to acquire any shares not previously tendered. Securitas, the largest guard company in Europe with about $4 billion in revenues, will absorb Burns, the largest U.S.-based provider of physical security. For the six months ended June 30, Burns’ revenues rose 7% to $717 million. The purchase of Burns builds upon Securitas’ March 1999 acquisition of Pinkerton’s Inc. for $384 million. The two acquisitions combined give Securitas the dominant position in the U.S. market. “We are now ready to take a new large step, and the acquisition of Burns will give us an excellent position from which to lead the development of the American security market,” said Thomas Berglund, president and CEO of Securitas. The integration of Burns and Pinkerton’s leaves Wackenhut Corp. as the only remaining major, independent U.S. security company. Its market cap is $220 million compared with Burns’ $429 million market cap. Securitas has said that it believes that no other security company can match its global reach. It offers security officer services, systems integration, consulting, and investigations. As corporations expand around the world, the Swedish company is betting that its size and reach will make it the first choice for many multinational clients. Beyond the inevitable challenge of integrating two large acquisitions in as many years, Securitas must adjust to becoming the dominant player in the U.S., which has the downside of being the market with the lowest margins, according to Brian Ruttenbur, a security industry analyst at Morgan Keegan & Co. in Memphis, Tenn. “Buying Burns gives Securitas a commanding hold on the U.S. market, but the low margins may make for a challenging environment.” Ruttenbur also says that Securitas will be able to achieve some savings by reducing overlap in senior and middle management. As in the Pinkerton’s acquisition, there is little geographic overlap. Prior to that deal, Securitas had 66,000 employees in 16 European countries. Berglund says that the acquisitions of Pinkerton’s and two smaller U.S. security companies, APS Inc. and First Security Corp., have been integrated successfully and operations are going according to plan. Berglund has set ambitious goals for the Burn’s acquisition. “Next year sales will go up by 38%, pretax profit by 7%, and cash flow by 18% as a result of the Burns acquisition.” Noting that crime rates have declined in the U.S., Ruttenbur says that the guard business has been plugging along with 7% or 8% growth rates despite the reports of decreasing crime. “This is an industry that depends on the fear of crime, more so than actual crime, and there is still a lot of fear of crime out there,” he notes.