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Guard Contract/Guard Company purchase?

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  • Guard Contract/Guard Company purchase?

    Greetings. I hope my inquiry is appropriate here.

    I am an observe and report type security company in the start-up phase. I have been blessed with encouragement and assistance from others including a couple company owners who would be somewhat my competition.

    One company owner is wanting to retire. Word has gotten to me that he wants to talk to me about selling his security guard contracts. I take this as he wants to sell the business.

    Realizing we on the forum are not business attorneys, that I know of, and realizing there is a wealth of experience and information on this forum I come here as the start of my research into buying another security guard company.

    What do I look at and what questions do I ask?
    How do I come to a reasonable and fair purchase price?
    Being reasonable, is the sale/purchase contract something he and I would do ourselves or should we use an attorney?
    I don't care to purchase his company name. I like my company name. Anyone experienced in client response to their security provider ownership/name change?

    There are probably many questions I should be seeking answers to but honestly I don't know what they are. I would very much appreciate any information from experienced business folks who may be able to provide guidance.

    My experience: Over a period of approximately thirty years.
    Military armed guard and Facility Security Supervisor.
    DOD armed guard.
    FEMA armed guard contract supervisor.
    Private security guard and armed guard.
    Private security Field Supervisor, Operations Manager and Project Manager.
    And still learning.

    Thank you.
    Steve C.

  • #2
    No one????


    • #3
      Chill, bro - people have other things to do.

      Purchasing any existing business requires the purchaser to perform a "due diligence" investigation, which can be the only thing standing between you and a disastrous purchase.

      Here's a link to a page that will give you an idea of the information you need:

      Most important is getting those contracts in front of a business lawyer. They might not even be assignable (transferrable) at all, or would require you to purchase the company itself as an entity (not just the contracts), and thereby you would assume any existing and even unseen forthcoming liabilities of the company.

      The next step - whether you purchase the contracts or the company - would be verifying the credit worthiness of the company and its clients, and assuring yourself that clients won't bail out under new ownership. This will mean talking with these clients, and if the owner objects you'll have to explain to him that deals like this can't be done in the dark, with you popping up out of a trap door in the client's office one day - "Surprise! I'm the new owner of ABC Security! He didn't want to tell you he was selling out...". You could make this step a contingency of the negotiations, but sooner or later you'll have to satisfy yourself that you're not buying a bunch of worthless paper.

      The next step would be assuring yourself that there are no existing or pending legal actions in connection with any of those contracts.

      The third step - again, either way, would be to decide how you'll service those contracts. If you're thinking of keeping his people in place, you'll need to do your own backgrounds on them and review their service records. They'll be YOUR people now.

      Where you would go from there would depend on whether you're able to purchase the contracts or have to buy out the company as a "going concern" in order to get your hands on the contracts.

      As for price, there are formulas for determining the present value of future cash flows and these can be used as "starting points" for negotiations. For the most part, I don't personally think most security contracts actually have much intrinsic value because they're usually cancellable with no notice or very short notice (e.g., 30 days) even when they're written for a certain term such as a year. In other words, the service is contracted for a year, but the client can bail more or less "at will". As such, they're practically "non-binding" - at least on the client's side. Their real value is that they give you a foot in the door and some advantage when the contract comes due for renewal if YOU do a good job with them - but only some advantage.
      Last edited by SecTrainer; 10-11-2009, 07:54 PM.
      "Every betrayal begins with trust." - Brian Jacques

      "I can't predict the future, but I know that it'll be very weird." - Anonymous

      "There is nothing new under the sun." - Ecclesiastes 1:9

      "History, with all its volumes vast, hath but one page." - Lord Byron


      • #4
        O.K. I'm cillin'. Although posts are commonly responsed to in a day. No big deal.

        Thanks for the information and the link.

        Think I'll pass on any such effort and expenditure right now. Starting out is keeping me and the check book busy as it is.

        Again. Thanks.


        • #5

          If it takes more than a day for a response, it is due to people wanting to give you some solid information, and that takes someone who has the chops to do that. That is a sign of professionalism by members of the forum.


          • #6
            I should add, incidentally, that most security contracts, unless *specifically* stated in their original terms to be transferrable, are not. Don't forget that you have a second party there (the client, remember?) who contracted with "ABC Company" for services. They did not contract with you or your company. This means that such contracts would either have to be renegotiated between you and the client or the client could elect to do a number of things, all of which are bad:

            1. Sue the original company (or former owners) for nonperformance.
            2. Vacate the contract altogether.
            3. Sue for any costs and losses involved in securing a new contractor...etc. We're talking lawyers here.

            There are also usually some creditor problems. Credit has probably been granted to "ABC Company" on the basis of ABC's assets and income - and contracts represent both. No creditor is going to stand idly by while the assets are sold out from under the company, so they might seek an injunction to forbid the sale of the company's source of income, even if that were possible.

            But none of this means that purchases of this general nature are necessarily "bad", only that they must be handled properly - which usually means purchasing ABC Company as a going concern, not merely its contracts. The most significant reason for making such a purchase is to acquire the competitive space that ABC occupies (meaning, to reduce your competition).

            Another reason might be to purchase the ABC brand, assuming that it has demonstrable market value (meaning, *positive* recognition value). In that case, you would usually cease attempting to establish the market position of your own company and fold it into the "recognizable" name of the ABC Company. Again, you have reduced competition, but switched from trying to brand yourself to assuming the established ABC brand.

            Rarely, ABC might have certain assets worth acquiring (other than contracts). One example of this might be ownership, or a transferrable long-term lease, of a highly desirable business location. Another might be some sort of desirable proprietary technology. On the other hand, the rolling stock of small companies, office equipment, computers, uniforms, etc. would usually only be desirable on a highly discounted basis.

            Personnel issues (especially differences in business cultures) are usually the thorniest problems in mergers and acquisitions, but trying to merge different technologies can run a close second.

            At the very least, legal advice and marketing analysis to determine the potential value of the merged operation, brand value, etc. would be advised. In many cases, small security companies aren't worth buying for their competitive space OR their brand value because they have little to none of either. In that case, you'd be better off spending your money and focusing your efforts on building a better company that competes with these "small fry" successfully, and knock them off that way. When you take this approach, it's cleaner, you never have to shoulder another company's baggage, and there's no surprises. Leave the "M&A" game alone until you're in a position to make acquisitions that are worthwhile (meaning, ones that are large enough to justify the legal and other acquisition costs).

            It's very instructive to read about the early years of Sam Walton, or the history of the largest security firms. You'll find that they competed directly in certain market spaces until they got big enough to make it worth competing by way of market space acquisitions (horizontal and/or vertical).
            Last edited by SecTrainer; 10-29-2009, 03:33 PM.
            "Every betrayal begins with trust." - Brian Jacques

            "I can't predict the future, but I know that it'll be very weird." - Anonymous

            "There is nothing new under the sun." - Ecclesiastes 1:9

            "History, with all its volumes vast, hath but one page." - Lord Byron