Security sector consolidation
Since 2010, ASCENDANT has completed 13 transactions in the security sector. Nine companies where a part of the AWG group in Bosnia and Herzegovina, 3 separate transactions where completed in Croatia and 1 in Serbia.
These companies where acquired by Securitas AB, a Swedish multinational company, currently the second largest security company in the world.
This was a classic example of successful sector consolidation in the region.
It should be recognized that the investor had different approaches to Croatia and Bosnia-Herzegovina. In Bosnia, it acquired the largest Group on the market where it became a market leader immediately. In Croatia, the investor opted to acquire smaller companies and work their way to second largest security company in the country. There are a number of reasons why this was the case, which will not be analyzed here, but mainly it comes down to the specifics of each market like size, number of companies, management of those companies etc.
In Croatia, before Securitas’ acquisitions, the market was divided between one large company (market leader), few state-owned companies which served mostly the state-owned companies and institutions, and a number of smaller security companies that were mostly concentrated in a limited geographic area.
Even before the foreign investor showed an interest to consolidate the market, smaller companies in Croatia recognized the need to merge or connect through a holding company in order to be able to compete with the market leader. However, these attempts were not successful. The main reason was that in these attempts there was no “equity element”. It was shown how hard it is to consolidate or merge companies without cash-out’s, especially on the markets where the local entrepreneurs are not too familiar with the investment banking and M&A industry and where they have not witnessed successful examples of such consolidations.
This was beneficial to the foreign investor because the negotiating power of each smaller company is much lower than it would be if these companies merged before a foreign investor decided to enter the market.
ASCENDANT’s role in the process of consolidation was sell side advisory. We started with AWG Group. After successful transactions of the companies within AWG Group we started to advise other companies which recognized the trend and the opportunity. This was a critical moment for the entire process. On one side, there was an investor interested to expand in the region, with sufficient funding to do it, on the other side, there was a number of local companies interested in the sale and an experienced advisor who prepared them for the demanding M&A process and led them through it all the way. For a successful consolidation, all of the three factors mentioned above are needed.
Today, Croatian and Bosnia-Herzegovinian security markets are consolidated. That does not mean that further transactions will not happen in the future, but such re-shaping of the market described here, in such a short period, is hardly going to happen in the foreseeable future.
One more element has to be mentioned, which permeates any M&A activity, and that is the clash of cultures. It can appear on a symbolic level and be easy to overcome, but still, it has to be recognized and taken care of.
In the case described here, it was as big as it gets. On one side, a Swedish multi-national company listed on Stockholm and New York stock exchange, on the other side, family owned entrepreneurial companies.
This consolidation process was a success for all parties, and we are proud to say that we were an integral part of it.