Anderson AV “had established deepand long relationships with many companies that frankly we had been targeting for a long time,” AVI-SPL CEO John Zettel said. “That’s why it really checked the box in that it was the company that we wanted to pursue [especially with] the geography and those sectors.”
Anderson AV “had established deepand long relationships with many companies that frankly we had been targeting for a long time.”
John Zettel, AVI-SPL
Similarly, Diversified’s acquisition of Technical Innovation in February 2016 provided it with significantly greater exposure to a suite of complementary solutions and services. CI 2016 Integrator of the Year Diversified got its start in digital signage, broadcast and IPTV among other areas while Technical Innovation’s expertise is in the area of command and control and unified communications. There were very few areas of overlap, which made the acquisition even more compelling.
“The strategy is in response to our clients, who are looking for a global partner,” noted Diversified CEO Fred D’Alessandro. “It’s less about us and being big or being everywhere. In deference to our name, we have assembled a wide array of subject matter experts across the full spectrum of multimedia solutions.”
Smaller integrators were also active on the acquisition front. In April 2016, Alpha Video & Audio acquired Video Tech of Tallahassee, Fla., providing Alpha with further entrée into the live event and sports production market, particularly for colleges and universities. It also gave Alpha a physical footprint in the Southeastern U.S., enabling it to provide increased support and integration services to its clients in that geography.
“Acquiring Video Tech is a unique opportunity to expand our service and support coverage by adding outstanding engineering, integration, event support and SMA expertise,” Alpha CEO Kevin Groves said in that deal’s announcement.“Greater depth of capability for the Florida office will be supplied immediately by Alpha Video’s experienced technical and administrative teams.”
When developing a strategy around corporate growth, acquisitions will continue to play an important role for integrators. Buy-side acquisitions may carrya greater upfront cost, but they will often reduce the execution risk of building out one’s own team and investing in the infrastructure to support it.
Private Equity Appetite, Attractive Industry Collide
Private equity sponsors typically employa buy-to-sell approach. The growth of the private equity sector is predicated on its standard practice of buying businesses and then, after steering them through a transition of performance improvement and add-on acquisitions, selling them. This is at the core of private equity’s success.
The commercial integration industry is particularly attractive to private equity investors for several reasons. First, the historically low-margin sector is experiencing somewhat of a rebirth. The pace of change in the AV industry, continued innovation in technology and the advent of IT-centric unified communications positions the overall industry for a period of sustainable growth.
In addition, the fragmented nature of the business provides exceptional opportunities for value-add, bolt-on acquisitions. And last, but certainly not least, is the rising importance of managed services and the recurring revenue streams it provides (valuation multiples are substantially higher for businesses that can demonstrate recurring revenues) make the case for expanding valuations in the sector.
All that said, private equity sponsor sare looking for opportunities to build value in their portfolios and are seeing substantial value-creation opportunities in the integration sector.
For example, “Verrex is the ideal combination of a multi-generational business that has built a strong culture combined with an unusually talented management team,” said Jeffrey Schaffer, founder and managing partner of Five Crowns Capital, in announcing that firm’s acquiring of 70-year-old New Jersey-based integrator Verrex last summer.
“The company has a long history of providing exceptional services to some of the most demanding multinational corporations in the world. Their culture and expertise position the company well for significant future growth, both organically and through strategic acquisitions,” Schaffer says. (Several notable private equity-sponsored transactions are identified above.)
Look for More M&A Upcoming
Mergers and acquisitions played a major role in shaping (or reshaping) the commercial integration industry in 2016. There is no doubt that the momentum created last year will continue into 2017. Last year’s mega deals generated a lot of positive chatter in the community and are causing many integrators to rethink their strategy and determine whether now may be the ideal time to either a) position their business for sale; or b) use acquisitions to build shareholder value.
Ari Fuchs is a director with The DAK Group, an investment banking firm specializing in the middle-market.
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