Acquisitions market to gain strength in 2012

The security industry has a number of well-attended conferences that focus on mergers and acquisitions.  I recently attended such a conference at the Breakers, a magnificent property located in Palm Beach, Fla.  It’s my 11th conference and I look forward to going each year. 

One of the highlights is a presentation by Mike Barnes, a St. Louis-based investment banker who focuses on the industry.  Mike’s presentation took the better part of two hours.  He and his team collect data regarding deals done in the industry each year and provide an annual report of sorts. 

Among other things, Mike confirmed for me what I pretty much suspected: 2011 was a slow year for acquisitions in the industry.  Deals were few and far between compared to previous years, acquisition multiples were down and the largest transaction (which I had the pleasure to have worked on) involved a little less than $500,000 in RMR. 

Mike looks at the market carefully focusing on four factors: buyers, capital, the market and sellers.  Mike reports that all four factors would appear to be gaining strength in 2012 with acquisition multiples likely to be on the uptick as a result.  According to Mike’s data, the average multiple for deals involving less than $500,000 in RMR was 37 times.

I don’t doubt the accuracy of Mike’s data but, based on my involvement in the marketplace, I think at least one large transaction done at a low multiple may be depressing the average multiple paid last year. I also continue to believe that a well-run company with an effective sales platform that generates RMR in an efficient manner can fetch a multiple that begins with a four.  Expect more on this topic in my next blog posting.