Fire Safety & Security Sector M&A: What Sellers Need to Know

A practical guide for owners thinking of selling their Fire Safety & Security business.

By Richard O’Donnell & Gb Ladipo, Co-Founding Partners, Pura Advisory

If you run a Fire Safety & Security business and are thinking about selling in the next 12–24 months, we’ve set out to provide you with a clear, buyer-focused picture of the market, the actionable attributes that make a fire safety & security business attractive and how you can command a premium valuation.  

All based on our experience with the key acquirors during the last 12 months.

1 - Why is the Fire Safety & Security Sector attractive?

Much of the buyer activity can be sourced back to the attractiveness of the sector to private equity investors.  Many private equity funds are investing directly into Fire Safety & Security businesses and providing them with a war chest for acquisitions, such that these businesses then become acquirors themselves, as they grow through acquisition in a highly fragmented market. 

There are many examples, such as Churches Fire, which has made nearly 50 acquisitions since partnering with Horizon Capital, Spy Alarms have acquired 30 businesses since Phoenix invested and Obsequio is set to continue its acquisition journey under new ownership with Warren Equity Partners.

What is it that has made the sector so attractive to buyers?

A high level of resilience

• The regulatory requirement for fire safety products and services means there is demand regardless of economic downturns and building occupancy levels – it is non-discretionary, non-deferrable customer expenditure

• The ubiquitous need for the sector’s products and services results in diversified end customer markets, protecting it from sector-specific shocks

Recurring revenues

• The resilient revenue of Fire Safety & Security businesses can typically be split between installation services and maintenance services

• The sale and installation of products is important, as it can be converted into highly attractive (and often higher margin) maintenance services, including scheduled maintenance, small works and call-outs

• Maintenance services are recurring, and often contracted, providing high revenue visibility and long life-time value

Legislative market drivers

• Safety reforms emerging in the aftermath of the 2017 Grenfell fire have led to industry transformation and driven increased expenditure on fire safety products, installation and maintenance services, stimulating market growth

  • For example, Building Regulations now mandate the installation of sprinkler systems in all new constructions exceeding 11 metres in height – a considerable reduction versus the previous pre-November 2020 threshold of 30 metres, that has dramatically increased the market for sprinkler systems, their installation and their maintenance

  • In addition, all buildings exceeding 11 metres in height must now undergo quarterly inspections, whilst buildings exceeding 18 metres are subject to monthly checks of detection and suppression systems

Shifting attitudes

• The 2017 Grenfell fire has also increased landlord and stakeholder focus on safeguarding their residents and tenants beyond what is required by legislation

• This reshaping of attitudes has led to larger fire safety budgets and expenditure, further driving the sector

2 - What characteristics do buyers look for in a Fire Safety & Security business?

Whilst buyer activity is high, not all business in the sector are valued in the same way.  Given the fragmented nature of the sector, buyers have options when it comes to deciding which businesses to buy. 

So what are the characteristics that will drive the attractiveness and value of your business?

Significant portion of revenue from maintenance services

Maintenances services are recurring and typically higher margin than installation services, which are largely one-off in nature.

A higher proportion of revenue from maintenance services is therefore attractive and will likely be valued more highly by a buyer.  However, a healthy installations function can still be important, as it can provide your business with ready-made maintenance services customers.

Active fire safety is more attractive than passive fire safety

Active fire safety (smoke alarms, fire extinguishers and sprinkler & suppression systems) is often more highly valued than passive fire safety (fire doors, ducts, fire-resistant glass and compartmentation), as most passive fire safety products, with the exception of fire doors, do not require scheduled maintenance.

End customer dynamics

Some degree of fire protection is specified by legislation for all buildings, often leading to a diverse range of end customers for Fire Safety & Security businesses.  However, scrutiny by a buyer of the end customer base is likely, as each end customer market will have its own attractive (or unattractive!) characteristics which may impact revenue growth.

For example, a Fire Safety & Security business focused on the dynamic data centre market (which is in high growth and requires rigorous fire safety measures) may be valued more highly than a similar business focused on high street retailers (which are exposed to economic cycles and are in structural decline, given the shift to online shopping).

EBITDA margin of 15%+

We’ve met many businesses in the sector and have seen a range in profitability.  It’s our observation that profitability is typically directly linked to the efficiency of technicians, with those businesses with an EBITDA margin of 15%+ having wisely invested in field service management software (to optimise route planning and workforce scheduling) and stock replenishment software to drive first-time fix rates (thus improving technician productivity).

Revenue per technician is an important Key Performance Indicator (KPI) that buyers will want to understand.  Businesses that have optimised this KPI often have an EBITDA margin of 20%+ and are more likely to command a premium valuation.

Optimised technician recruitment, training and retention process

A proven ability to consistently recruit, train and retain technicians is likely to drive customer service levels, reduce recruitment and training costs and be perceived, by a buyer, as an asset to the business. 

A buyer is likely to focus on technician churn and the quality of training provided, in order to satisfy themselves that the business has a robust technician model that can enable it to scale operations as the business grows.

Management team track record

If the buyer is a private equity investor, they will not want to run the business themselves.  Instead, they are likely to be backing the incumbent management team of the business to deliver the growth plan going forward. 

A track record of delivering growth in the business is therefore important, and this could include a track record of successfully acquiring and integrating other businesses, if this forms a core part of the growth strategy going forward.

3 - How can Pura Advisory help?

As founders ourselves, we understand how hard you’ve worked to build your business and the pride you take in owning it. 

You’re well-versed in growing your business, but selling it is a unique event, with the best results achieved from seeking the advice of an experienced advisor.

Having completed over 100 successful transactions over a 20-year period, the Founding Partners of Pura Advisory can guide you through your sale process.  With a truly hands-on approach, we will support you every step of the way and put you firmly in control of achieving the best outcome.

To learn more about how we can help you, speak to us today.