As president of ADS Security, John Cerasuolo has bought more than 20 companies in the past five years.
“There is a ready market of small, independent security companies,” Cerasuolo says. “It's a very fragmented industry. And because they are small and because of some of the dynamics going on in the industry, we could acquire them at favorable multiples.”
And acquire he has. To keep up that pace of dealmaking and integration, ADS has built an internal team to source, transact and integrate companies. It also required a marketing strategy that positioned ADS as a company that owners would feel comfortable selling their business to.
Smart Business Dealmakers talked with Cerasuolo to get an inside look at ADS’s deal process, from the work of the internal team to how the company markets itself to potential sellers.
Building the deal team
Cerasuolo says there's essentially two pieces of ADS’s internal deal team. The first is a group that sources deals — largely he and a business development VP who was brought in after selling his company to ADS.
Self-sourcing was an important part of the strategy. It helped the company acquire companies at favorable prices because by doing direct deals, ADS was not getting in a bidding contest.
“Generally, all those deals were closed directly without any competition,” he says.
The second piece is the integration team. It comprises experienced people who know how to integrate deals quickly, which is an important aspect of keeping up ADS’s deal pace.
“Oftentimes a challenge of doing a lot of deals at one time is you need months and sometimes years to digest acquisitions that you've done and you're kind of off the market while you're busy digesting a previous deal,” Cerasuolo says. “So we had to get to where we could close and integrate these acquisitions quickly and rapidly get them on a growth track because that’s a big component of our value creation model. It takes a really strong team to deal with the employee issues, reintegration, the transition issues with customers as part of the integration, the technical IT and system part of that. We built a really effective team so that we could move on to the next acquisition very quickly.”
Only as good as its name
Another important component of ADS’s approach to dealmaking is its brand.
“Our model was to build a reputation as the most desirable buyer in the south — all these deals are in the Southeast,” he says. “We set our targets on treating sellers exceptionally well.”
He says there are acquirers that get a bad reputation for taking advantage of the lack of sophistication of sellers, don’t deliver on their promises or find ways to cut corners and minimize what they pay on the back end of deals. Cerasuolo saw that as an opportunity.
“We went overboard in making sure that we treated sellers fairly and used those sellers, the ones who have previously sold to us, to help us market to our new prospects.”
To that end, ADS produced a video in which it interviewed people who had sold their companies to them about their experience. The company wanted to be seen as a fair player, one that sellers could trust and an organization that did what it said it was going to do.
The company also built a database of every security company in the Southeast — and there are thousands of them — and established a communication plan to stay connected to them.
“So whether it's Christmas cards or update emails every time we do a deal, or just other things going on within the company, we engage with them,” Cerasuolo says. “When I travel I meet with them and it's very low pressure. Our approach is we want to earn your trust. In many cases we might have met someone and stayed in touch them not even five years until it was time for them to sell and they came right to us and negotiated, closed the deal and nobody else knew about it.”
In that sense, Cerasuolo says he’s doing deals one handshake at a time, building relationships and the reputation as the best company to sell to.
“And that helped us to avoid the expense and challenge of brokers — not just their fees, but the bidding activities that they create and the impact that has on the price that we pay,” he says. “So it was a very low pressure but high-intensity effort to stay in front of everybody so that when it came time to sell, we were the one that they came to.”