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Discussion Question: It is safe to say that that most or all students have met or worked for at least one poor manager/leader. Please describe what makes a poor manager/leader using a minimum of at least three elements. Provide examples of at least one manager/ leader you did not feel possessed the traits of a good manager/leader.
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WHITE PAPER
On The
U.S. CONTRACT SECURITY INDUSTRY
Also known as: Security Guard Industry
MARKET MARGINS MERGERS MULTIPLES
Prepared by:
JULY 2012
www.roberthperry.com
Table of Contents
MARKET
DEFINING THE “CONTRACT SECURITY” MARKET
“GUARD” VS. “OFFICER” – THE DISCUSSIONS CONTINUE
THE EXPANDING MENU OF SERVICES OFFERED
HOW CONTRACT SECURITY COMPANIES DEFINE THEMSELVES
THE PUBLIC OPINION OF THE CONTRACT SECURITY MARKET
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1
3
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SIZE OF THE U.S. CONTRACT SECURITY INDUSTRY
NUMBER OF COMPANIES
REVENUE
COMPOSITION – BY COMPANY SIZE
NUMBER OF EMPLOYEES
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5
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THE CONTRACT SECURITY MARKET AND THE RECENT
ECONOMIC DOWNTURN
BANKING RELATIONSHIPS
SOME CONTRACT SECURITY COMPANIES ARE GROWING
FACTORS CAUSING GROWTH AND CONTRACTION OF
REVENUE IN THE CONTRACT SECURITY INDUSTRY
CONTRACT SECURITY PERSONNEL (GUARDS) VS. ELECTRONICS
MITIGATING THE CONCERN
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MARGINS
MARGINS AND EBITDA
REVENUE, PROFIT AND EBITDA MATRIX
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MERGERS
MERGER AND ACQUISITION ACTIVITY
OVERVIEW OF WORLDWIDE COMPLETED TRANSACTIONS
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PRIVATE EQUITY GROUPS MAKING INVESTMENTS IN THE CONTRACT
SECURITY INDUSTRY
THE POSITIVE ASPECTS OF THE CONTRACT SECURITY INDUSTRY
THE NEGATIVE ASPECTS OF THE CONTRACT SECURITY INDUSTRY
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(CONTINUED)
MULTIPLES
SELLING PRICES FOR LARGE CONTRACT SECURITY COMPANY
TRANSACTIONS
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SELLING PRICES FOR SMALL CONTRACT SECURITY COMPANY
TRANSACTIONS
SELLING MULTIPLES
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THE AFFORDABLE CARE ACT AND THE ANTICIPATED VALUATION
OF SELLING COMPANIES
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IT’S STILL A SELLER’S MARKET
HOW LONG WILL THE MARKET BE IN THE SELLER’S FAVOR
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FACTORS DRIVING OWNERS TO SELL IN TODAY’S MARKET
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WHY OWNERS ARE NOT RUSHING TO PUT THE COMPANY ON THE
MARKET, IN SPITE OF SHRINKING MARGINS AND REVENUE
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OUTLOOK
CHALLENGES AND OPPORTUNITIES FOR OWNERS OF CONTRACT
SECURITY COMPANIES
CHALLENGES
NEW HEALTHCARE BILL (AFFORDABLE CARE ACT) AND THE
INDIVIDUAL MANDATE
THE BIG WINNERS WILL BE THE SECURITY OFFICERS AND
“MAYBE” THE LARGE SECURITY COMPANIES
FURTHER UNIONIZATION OF THE CONTRACT SECURITY INDUSTRY
INCREASE IN FEDERAL INCOME, CAPITAL GAINS AND
INHERITANCE TAXES
HIGHER UNEMPLOYMENT AND OTHER TAXES
OPPORTUNITIES
ABOUT US
ROBERT H. PERRY & ASSOCIATES
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MARKET
Defining the “Contract Security” Market
Important Note: Throughout this report, we will use terms such
as “security guards”, “security officers”, “security
professionals” and various other names in describing the
industry as it redefines itself to more closely align with the
services it offers, as explained below.
“Guard” vs. “Officer” – The Discussions Continue
The contract security officer industry remains in a state of evolution in how it
describes itself to the general public. Up until a few years ago, most people used the
term “security guard company” in describing this industry. Then, many in the
industry started dropping the term “guards” in their brochures, websites and other
areas where they described their services and started using words such as “security
officers”, “security professionals”, etc.
Recently there have been intense discussions going back and forth amongst the
security professionals about this. Some are adamant that there’s a distinct difference
between a “guard” and an “officer”. In researching this subject, we went to the
ongoing blog on the website of Security Director News and found some very
interesting discussions taking place:
Jeffrey Hawkins, American Military University’s manager of strategic initiatives for
the private security sector, commented as follows:
”I think there are some people in the industry that do not like the term
‘guard’, feeling that is an outdated title, one that demeans the position by
creating the image of the old-time security guard that slept in a factory in
between doing rounds, mostly to make sure there were no fires in the
building. If you look at the actual Webster’s definition, the term ‘guard’ is
actually more applicable to what security personnel do ‘to protect’,
‘officer’ is defined as one with police authority”. He went on to say that
…… “my feeling is that there are still ‘security guards’ and there is
nothing wrong with that; I think of these folks who are generally at a fixed
location and oversees the protection of an object, or area, or certain point
of access. I feel ‘officer’ is probably more applicable to uniformed
security personnel who patrol and perform more ‘police-like’ functions.”
1
In a June 07, 2012 blog, Siomary Mendez said that in India, Security Guards and
Security Officers are actually looked upon as separate and each has its own license.
He went on to describe the official difference between the two. Below is an
explanation of the differences:
Difference in Titles
Security Guards typically have little responsibility other than basic fire
safety and building integrity tasks.
Security Officers may have very elaborate protocols that involve a wider
range of tasking and responsibilities. He will be the person controlling
entire physical security operations at the posted assignment and provide
appropriate instruction to the deployed guarding force.
Difference in Training
Security Guards often have minimal training, since they are seen as more
of a human alarm system that when tripped, reports incidents which comes
to their notice on static or roving post.
Security Officers are typically trained to a standard more to take decision
on the spot in coordination with management and also to approaching law
enforcement if required. This is because they are often mandated to respond
to incidents.
Difference in Wages
Security Guards are entry-level personnel in the protective services field
and, as such are paid on average at or just above the state-mandated
minimum wage.
Security Officers, due to their higher level of training, experience and job
responsibilities, are paid more inline with local law enforcement and
corrections personnel in their community.
2
The Expanding Menu of Services Offered
Although there’s no clear cut distinction here in the U.S. on what constitutes calling
one who protects and/or reports a “guard” or an “officer”, many companies today
have dropped the “guard” term in describing the services it provides simply because it
implies a limited service offering menu, whereas the security company today tends to
be a “one stop” source for a variety of security needs, such as:
Special Event Security
Risk Analysis
Security Consulting
Loss Prevention
Investigators
Background Screening
Facility Design
Roving Vehicle Patrol Services
Concierge Services
Alarm services and security systems integration (although many contract
security companies do not actually perform this service in-house; they refer
this type of work to a “partner” that specializes in providing the product or
service).
How Contract Security Companies Define Themselves
In researching the subject, we viewed the websites of some of the largest contract
security companies. We noted that there are many ways the companies describe what
they do in providing the traditional manned and electronics security functions. Here
are a few examples of what we found:
“We are a security solutions company that offer a full range of protection
services to companies needing to protect its precious assets”
“We are a private security services company offering armed and unarmed
security officers”
“We are a contract uniformed officer company”
“We are an international solutions group. We offer outsourced business
processes where security and safety risks are considered a strategic threat”
“We provide our customers with a range of specialized sources or a complete
security solution”
One company’s site we visited showed under the heading of “Specialized
Guarding” – “A trained security officer performs services tailored to the
needs of medium-sized and large businesses”
3
Those companies that have dropped the word “guard” in describing their services are
having some serious marketing challenges. Regardless of what the security
professionals are saying about the true definition of “guards”, the general public and
potential customers still use this term as they “Google” to find a security vendor, or
look in the yellow pages for the list of potentials, which will still be listed under the
heading of “Security Guards”. Therefore, owners of many companies today that
primarily call themselves security officer companies feel they can’t get away from
using the term “guard” at least somewhere in promoting their company for concern of
not being found.
The Public Opinion of the Contract Security Market
The contract security industry has been striving for many years to elevate how it’s
perceived in the public opinion marketplace and it has made great progress in this
endeavor, in spite of Hollywood making movies like “Paul Blart: Mall Cop” and
“Night at the Museum” that painted unflattering, demeaning pictures of security
officers.
The contract security officer of today tends to be better educated, better trained, and
in several areas, more qualified to handle the security functions demanded by the
company’s customers. This didn’t happen overnight – it’s the result of efforts on the
part of the owners that want their company to be a truly professional security
organization; and national security organizations such as NASCO (www.nasco.org),
and ASIS International (www.asisonline.org); as well as the many state agencies and
organizations working together to create legislation and best practices procedures for
the industry. The general public also demanded this change, but there are still serious
improvements that need to be, and are being, made in the industry.
Just like any other highly fragmented industry (as reported in the next section, there
are an estimated 8,000 individual contract security companies in the U.S.), the
contract security industry has its rouge companies that occasionally get bad publicity,
but in spite of this occasional happening, the perception about the contract security
market in the minds of the general public has definitely been elevated over the past
few years.
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Size of the U.S. Contract Security Industry
The matrix making up the number of companies in the market
continues to indicate a very fragmented market, with a few large
companies controlling the majority of the gross revenues for the
industry.
Number of Companies
Trend: No significant change from July 2011 white paper report
Many sources indicate that there are around 10,000 individual contract security
companies in the United States alone, with 1 (one) report indicating 14,000
companies. We believe these figures are somewhat inflated for the following
reasons: 1. the figures were compiled from reports using SIC (Standard Industrial
Classification) codes and in some instances, investigative and other small companies
not offering traditional contract security services are included in the 7381
classification 2. Duplication in counting – some reporting agencies are counting
branch offices of a multi-office national contract security company, as separate
companies.
Our firm has been building a database of U.S. guarding companies for more than 25
years, and has identified approximately 6,000 individual companies that employ more
than 100 personnel and provide mostly contract security officer services. We feel that
our database is reasonably accurate and when the companies employing less than 100
personnel are added, the total number of companies offering contract security officer
services is in the 8,000 range. There’s no indication that a significant number of new
companies have started up since last year, therefore we will continue to use 8,000 as
the estimated number for the total U.S. contract security companies throughout this
report.
In spite of the fact that the market is very large, it’s also very fragmented and there’s
very little public information on the financial performance and the operating practices
for the privately-held companies. We have, over the past 25 years, come to learn that
this lack of public information is due primarily to the nature of the business and the
owners’ mindset. It is, after all, the security business, which by definition operates
under a code of secrecy. There are no associations of contract security companies
that accumulate and publish financial statistics on the industry.
5
Revenue
The Freedonia Group study #2362 (in October of 2008) indicates that the U.S.
Contract Security Guard market was $22.150 Billion in 2007 and was expected to
grow to $28.9 Billion by 2012 – a 5.5% annual growth rate. This same report puts
the worldwide security guard market in 2008 as $38 Billion, which means the US
market alone is over half the size of the world market. However, a previous report
by Freedonia showed the same U.S. market as $17 Billion in 2007 – the difference
being a new definition of what is included in the SIC code for contract security
companies to include an expanded population of private investigators and other
related security groups.
Most industry experts are saying that today’s contract security market, to include only
traditional standing security officer services, is in the $20 Billion range and is
growing around 5% per year. However, much of this growth is coming from increase
in billing rates rather than companies adding security coverage. Also, many experts
are saying that if the present “in-house” security market were to be expressed in terms
of what contract security firms would charge for the service, the size of this segment
would be in the $16 Billion range. We will use $20 Billion to describe the size of the
present contract security market throughout this report.
Composition – by Company Size
No. of
Companies
(1) (2)
(2)
(2) (3)
(2) (3)
(2) (3)
(3)
(4)
Over $1 billion
$300M $1B
$100M – $300M
$50M – $100M
$20M – $50M
$5M – $20M
$0 – $5M
Annual Revenue
(in million $)
4
4
9
11
12
200
7,760
9,200
1,911
1,396
650
462
2,000
4,381
(6) 8,000
(5) 20,000
(1) 2 companies, representing $6.1 B in revenue, are foreign owned
(2) From July 2012 issue of Security Letter
(3) Estimated based on information in files of Robert H. Perry & Associates, Inc.
(4) Arithmetical function to come to the 8,000 companies and $20B revenue
(5) See information on the “Size of the U.S. Contract Security Officer Industry” – on
page 5 of this report.
(6) Some sources indicate the number of companies as 10,000 – 14,000
6
It’s interesting to note that the four companies making up the “over $1 Billion”
category didn’t get large by adding one customer at a time:
1. Securitas (now $3.5 Billion in the U.S.) started with the initial purchase of
Pinkerton’s in 1999. Pinkerton’s had over $1 Billion in revenues at the time
of purchase. Securitas followed with the purchase of Burns, a $1.5 Billion
company, in 2000; then went on to make about a dozen other acquisitions with
combined revenues at the time of purchase of approximately $500 Million.
As indicated later in this report, Securitas has concentrated most of its recent
acquisition activity in the emerging markets.
2. G4S (now $2.6 Billion in the U.S.) made its initial entry into the U.S. with the
purchase of Wackenhut in 2002. At the time of purchase, Wackenhut was
billing approximately $2.8 Billion. Since that time, G4S has divested some of
the traditional standing security officer business, and has limited its
acquisition activity in the U.S. security market to mostly electronics and highend investigative type companies. As indicated later in this report, G4S has
concentrated most of its recent acquisition activity in the emerging markets,
soon to represent 50% of its total revenue.
3. AlliedBarton (now $1.8 Billion) was formed through the initial purchase of
Spectaguard in 1998. Spectaguard had revenues of approximately $60
Million at the time of purchase. Since that time, AlledBarton has purchased
large companies such as Barton Protective (approximately $400 Million) and
Initial Security (approximately $240 Million). In total, AlliedBarton has made
approximately 10 acquisitions with combined revenues of approximately $1
Billion.
4. U.S. Security Associates (now approximately $1.3 Billion) got its start with
the initial purchase of Advance Security from Figgie International in 1993. At
the time of purchase, Advance had revenues of approximately $70 Million.
Since that time, U.S. Security has made approximately 15 acquisitions of mid
to large sized companies plus a number of smaller acquisitions with combined
revenues of over $1 Billion (including $350 Million in revenue from Andrews
International, its most recent transaction).
Number of Employees
Trend: No significant change from July 2011 white paper report
An interesting fact about the contract security industry is that there are approximately
1.5 million security officers (to include full and part time personnel) in the U.S.;
about 2.5 times the number of public law enforcement personnel. If, in fact, the
contract security market is getting more undesirable publicity than the public force –
it could be primarily because the contract security officer market is so much larger
than the public force; thereby a much larger “public opinion” target.
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The Contract Security Market and
the Recent Economic Downturn
While traditionally the contract security market has been viewed as recession proof,
most contract security companies will feel at least a mild set-back through a
prolonged recession. Typically, during a prolonged recession, the security industry is
among the last industries to go into the recession and the last to come out. Just how
much a security company is affected by the recession depends on how well financed
the company was going into the recession and how much the vertical markets the
company serves are affected by the downturn.
Banking Relationships
Trend: Banking Relationships Still Uncertain
When the economic downturn started about three years ago, the relationship owners
of contract security companies had with their banks, for the most part, began to
deteriorate. Since then, we have heard many disturbing stories about companies
having to change banks because their present bank called their credit line, or
otherwise informed them that come renewal time the line amount will be reduced or
not be renewed. Other companies had increased borrowing costs, but remained with
their present bank.
Some Contract Security Companies are Growing
Trend: Fewer Security Companies Have Experienced Growth in the Past 12
Months Than in the Previous 12 Months
A few of the contract security companies are actually experiencing growth, but at a
lesser pace than last year, in this bad economy as customers increase security to
combat the increase in the crime rate that goes along with a financially challenging
economy. Also, many of the contract security companies (especially the larger ones)
are introducing new and more profitable services as a way to win new accounts or
keep existing ones; such as the bundling of security services. In fact, many of the
larger companies are getting into the remote video monitoring business as a way to
supplement or enhance the existing traditional standing security officer service.
Some are also pursuing the background screening business, “Alert Line” services,
executive protection, etc. – all as a way to diversify and get more competitive and, in
a lot of instances, set themselves apart from their strongest competitor in the
traditional standing contract security market.
8
Factors Causing Growth and Contraction of Revenue in the Contract
Security Industry
Growth Factors – Many reports still indicate that the contract security
market in the U.S. will continue to grow in the low to mid single digit
range for the next three years:
1. Companies looking to cut costs are eliminating their in-house security
program and using contract security companies. Typically, in-house security
employees will have a higher pay scale due to long term tenure with the
company and expensive retirement benefits. By contracting out the security
function, companies are getting better trained security personnel in many
cases, for less total outlay.
As mentioned earlier in this white paper, it’s believed that this in-house
market is presently in the $16 Billion range. As more of the companies
presently utilizing in-house security are faced with rising employment taxes
and the challenges of the Affordable Care Act, it’s expected that the move
from in-house to contract security may dramatically increase.
2. During a “down economy” the crime rate increases, thus companies looking to
safeguard against the increase in crime are increasing their security coverage.
This is particularly evident in the city and state municipal government sector,
where there’s a lot of pressure from the public to provide more protection at a
reduced cost.
3. As smaller companies have a difficult time operating due to a cut-back in
security from their customers and increased line of credit costs (or banks
actually terminate the credit lines), more of these companies will go out of
business or sell to their larger competitors. As a case in point; a recent mass
mailing our firm made to our database of contract security companies, resulted
in a record number of the letters being returned with an indication that the
company was “out of business”. Although this does not cause growth in the
overall market, it does cause a shift of the business from the small, thinly
capitalized companies to the larger more financially robust regional, national
or international contract security companies.
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Factors Causing Contraction
1. Certain industries adversely affected by the downturn in the economy are
closing locations, thereby eliminating the need for security once needed in
those areas.
2. Some companies are eliminating contract security and using their own
personnel to handle the security functions as a way to justify keeping the
valuable employees…however, the converse of this is true in many instances
as mentioned in #1 under “Growth Factors” above.
3. Companies adversely affected by the economy are reducing the amount spent
on security and taking on the risks of leaving the plant or premises vulnerable
to incidents.
4. Some companies are trading security officers for electronic security. More
on this topic under “Contract Security Personnel (Guards) vs. Electronics”
below.
10
Contract Security Personnel (Guards) vs. Electronics
For several years, the owners of contract security companies have been discussing
whether electronics could replace guard hours or eliminate the need for a human
security officer altogether. But until lately, they have not seen this as a real threat to
their business.
However, while the contract security industry has been growing in the low single
digit range for the past few years, the electronics security industry has been gaining
ground and has been performing much better. While there are no statistics pointing to
exactly how much, if any, revenue the electronics industry has taken from the
contract security industry, there is concern amongst the owners of contract security
officer companies that this may start happening as the contract security firm’s
customers look at ways to trim their security budgets.
The telecommunications giant, Time Warner Cable, recently entered the home
electronics security market and there has been recent news articles indicating that
phone companies such as AT&T and Verizon are considering entering this market as
well – a natural progression for these conglomerates to expand their service offerings
for their millions of customers. Experts in the industry are saying that this could
indicate a game changing event for the electronics business. One scenario is that
they would have to team up with the existing electronics companies to handle the
installations, service and response, which could actually be good for some of the
existing electronics companies; while others are saying that these companies have a
very large band width that takes competing in the electronics sector to a whole new
level and that would be concerning.
The question in the minds of owners of contact security companies is: will these
companies expand their services to the corporate and small business market as well,
thereby taking revenues from the contract security companies?
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MITIGATING THE CONCERN
However, the above concerns are being mitigated to a large extent by the evidence
that, so far, electronics has not taken away from the need for human security officers,
but has been used as a way to enhance the overall needs for the security customers.
More and more contract security companies are getting into the video monitoring
business as a way to keep the customer that’s looking for this service. Those that
can’t afford the very large investment to get into the video monitoring business are
teaming with installation and monitoring companies as a way to offer the service.
Take the case of Securitas: Securitas sold off its electronics system integration
business, Niscayah, about 5 years ago, then after finding out that it did in fact enhance
the contract security business, tried to buy it back. In the buy back process it lost its
chance to acquire the company when Stanley Works outbid Securitas and bought the
company for $1.2 Billion. Securitas has subsequently teamed with Convergent
Technologies, a giant in the systems integration field whereby Convergent will be the
electronics arm for Securitas.
There are many in the industry that say the electronics industry will never adversely
affect the contract security officer revenues, but that the contract security officer
function will form more of a “partnership” with the electronics security function –
both are needed as a way to enhance effective security.
John Briggs, the Operations Director of First Security in London addresses the
concern best in his exclusive blog at infologue.com; although this quote comes from a
person not in the U.S. market, we feel it accurately describes the situation of humans
vs. electronics in the U.S. The quote from Mr. Briggs follows:
“So how can industry make the best use of this security mix, using both
electronic and manned approaches in parallel so that they compliment
each other and contribute to a safer environment? With so many different
options available it is often difficult for customers to choose the best
approach.”
“Companies are naturally striving to achieve the best security mix through
analysing the various options available to them. CCTV, for example, has
the benefit of acting as a deterrent as well as keeping a log of recorded
surveillance. Yet at the same time companies still need a human, visible
deterrent that is able to intervene and prevent disorder on the ground.”
“In our experience at First Security we have found that by adopting a
combined approach, an effective, tailored solution can be achieved. There
are countless examples of where this is being used to good effect.”
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“For instance, an automatic number plate recognition system (ANPR)
placed at the entrance of a car park is able to recognise vehicles that have
been registered with the police as stolen. When this happens, notification
is flagged automatically to a security guard who determines where the
vehicle is parked and reports this to the police for action. Awareness that a
number plate recognition system is in use often acts as a deterrent.”
“Equally, turnstile technology acts as a physical barrier only allowing
access to those with swipe cards or tags, which are read by computeroperated detectors. However, this does not stop individuals trying to beat
the system by tailgating or jumping the electronic obstacle. This is where
a security guard has an important role to play; firstly by acting as a
warning and also, when incidents do occur, making a judgement,
confronting the individual and dealing with the situation appropriately.”
“The right security solution does not have to comprise of technology alone
or rely solely on manned guards. In fact, the best approach is to use both
together to support and complement each other in an intelligent manner.
Ultimately, an effective solution lies in creating the right balance to
deliver an effective, safe and secure solution.”
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MARGINS
Margins and EBITDA
Trend: The Gross Margins are trending down due to competitive pressures as well
as operating costs. EBITDA shows no change.
Typically, the well-run closely-held small to medium sized contract security company
will have better margins than its larger competitors. The reasons are:
1. The smaller contract security company is selling personalized service from the
owner and many customers are willing to pay extra for this personalized
attention.
2. The smaller contract security company operates in a limited geographic area
or region; thereby cannot service or attract the larger customers with multi
national or international sites. These “national accounts” are mostly handled
by the larger national or international security companies; but the competition
to win these types of customers is very intense. Therefore, the large security
companies will bid these accounts at much lower margins (than the smaller
companies are getting for their “local” accounts) in exchange for a larger
volume of revenue, the prestige of providing security for some well known
conglomerate, or the possibility of obtaining additional sites or other types of
security for this conglomerate at much higher margins once the security
company gets its foot in the door.
On page 16 is a chart showing the typical margins for the small, regional and
national/international U.S. Contract Security Companies – with an insignificant
portion of the revenue coming from the governmental sector (typically very low
margin business). There is no margin or EBITDA information published for the
industry. The information was prepared based on a limited number of financial
reports we examined, along with interviews with owners of contract security
companies across the U.S.
The chart indicates a drop in site and branch level profits over the past couple of years
of approximately 2%. The overwhelming majority of the owners feel the margins
will only get worse due primarily to more increases in the unemployment tax rates,
anticipated increase in workers compensation rates, and having to absorb some of the
cost of the Affordable Care Act that will come into full effect in 2014.
It’s interesting to note that although the margins at the site and branch level have
slipped approximately 2%, EBITDA has remained relatively steady over the past
couple of years. This is due primarily to a lot of “belt tightening” at the home office
level accomplished by being more efficient in utilizing the non-billable personnel, or
eliminating altogether some non-billable personnel through investing in technology.
15
Revenue, Profit and EBITDA Matrix:
(4)
Small Companies
(5)
Regional Companies
National/International
Companies
Revenue
100%
100%
100%
Profit at site Level (1)
18%
14 – 16%
11 – 13%
9 % (6)
8%
6-7%
5-6%
Profit at Branch Level (2)
EBITDA (3)
6-7%
1. Site level profit is the billing to the customer less all costs assigned to the site,
such as: compensation for the billable officer, wages for the dedicated non
billable supervisor (if any), uniforms, employer payroll taxes, workers
compensation insurance, general liability insurance, employer portion of
health benefits, cost of equipment dedicated to the site, union cost, cost for
non billable roving supervisors if there are a lot of “cold start” sites, etc.
2. Branch Level profit is the site level profit less all the cost to operate the
branch office (for companies with multiple branch offices) such as: all non
billable personnel in the branch, office lease cost, telephone, supplies, etc.
3. EBITDA is Earnings Before Interest Taxes Depreciation and Amortization.
4. Small Companies – Revenues less than $10 million; owner manages the
business and has customer relationships; operates from one office. Usually
inefficient in back-office operation and pays more on a per-unit cost for
insurance, uniforms, etc. In addition to the previously mentioned cost
increases, gross margins are slipping due to the larger companies’ recent
interest in the smaller accounts, which typically have higher margins.
5. Regional Companies – Revenues $10 – $100 million; owner less involved in
customer relationships, operates multi-offices – usually volume is $5 – $10
million per office. These medium sized companies are also experiencing
margin slippage due to the previously mentioned costs
6. The Branch Level profit can be much lower for regional companies with many
small offices in areas w
