Specialist
Former executive at Convergint Technologies LLC
Agenda
- Secular trends driving growth for Convergint and peers
- Business overview, competitive positioning and relevant strengths and weaknesses
- Outlook for M&A following debt raise
- International expansion and niche, plus adjacent markets that Convergint has the potential to enter
Questions
1.
Could you give us a brief overview of the history of Convergint’s business? What are the largest end markets the company sells into, manufacturers it works with and any key points of the business’s evolution over the years?
2.
Can you give us a sense for the competitive set, who Convergint is primarily competing with across electronic security, fire alarm and safety and digital transformation? Could you give us a sense for larger players’ strategic strengths and weaknesses vs the company?
3.
Certain players, such as JCI, presumably work on bigger jobs because of their size, and they also manufacture their own products. Can you talk us through Convergint’s competitiveness in the market? At that point, can the company even compete on larger projects, or do those typically go to larger players? Can you explain the dynamics in the market?
4.
Could you give us a ballpark range of Convergint’s end market exposure? Which markets is it primarily exposed to and how should we think about its share in each?
5.
In a comparison of Convergint vs the competitive set, you mentioned the company is a lot smaller but continuing to grow. What is its unique value-add as an integrator? What separates it from peers? What does it do better or worse?
6.
You alluded to the point that Convergint has taken share from players such as JCI. In which markets is the company gaining share, and how has it been able to do so?
7.
Have account managers shifting and bringing the business with them been the predominant driver of share shift? Has Convergint gained share in other ways?
8.
Across all of Convergint’s markets, what are the key trends, headwinds and tailwinds our clients should be cognisant of? What’s driving organic revenue and profitability growth in the industry?
9.
Can you explain the impact of WFH and lower occupancy rates? Does the fact that most metros have now seen occupancy rates start to flatline materially impact the outlook for Convergint’s solutions and services?
10.
If occupancy rates do flatline, do empty floors need to be kept up with the same amount of fire alarm testing, for example? Will revenue continue to be generated, regardless of whether there’s 1% or 100% occupancy?
11.
What products or systems are being increasingly demanded by customers? Does any particular systems manufacturer stand out to you as being an industry leader or having grown meaningfully faster than peers in recent years?
12.
Given the implementation of AI and machine learning with cameras, how much is labour reduced? Does adding a biometric scanner remove the need for a security guard? How should we think through these impacts?
13.
How does the relationship between Convergint and system manufacturers work? For example, if a customer wants a system that Convergint doesn’t work with, can the company go out and forge that relationship relatively easily, or does that business typically churn to an integrator with a pre-existing relationship?
14.
Convergint changed hands a couple of times during your tenure. What were the key areas of investor pushback concerning the company’s business model? What risks were most concerning?
15.
Convergint raised USD 145m in November 2022 to repay some of the drawn amount, as you alluded to, and to fund future M&A. Can you give us a sense of this process? What are the qualities of a good business for the company to acquire? What metrics or ratios are important to dig into?
16.
When Convergint is looking at the customer, is it seeking out a specific vertical end market or perhaps looking to have a more diverse customer base? What are the qualities of a good vs poor business?
17.
Convergint is now more focused internationally. How should we gauge the success of the company’s international expansion? What signposts would signal that things are going well vs poorly in that strategy shift?
18.
You mentioned that a number of Convergint’s acquisitions shouldn’t have been acquired. You noted 27 deals in 28 months – how would you assess that track record? In terms of price discipline, strategic value of those deals and ability to integrate, how would you assess the company’s acquisitions?
19.
Outside of management teams, where has integration proven to be more challenging than initially anticipated? What are the common denominators in a business that is more challenging for Convergint to integrate?
20.
Are there pockets – specific segments or end markets – where the labour shortage is worse? Have labour rates increased meaningfully, given the shortage?
21.
Could you give a sense of what margins looked like prior to the labour shortage and the impact we see today?
22.
Do any of Convergint’s acquisitions stick out as more strategically important? Conversely, are there any areas where the company may have overpaid?
23.
You noted the risks associated with Convergint’s debt, and it recently raised USD 145m to partially pay off certain past lines. Do you foresee any risk there, or is there still an appetite from creditors to fund the business? Are there any other risks you’d highlight?
24.
You mentioned Indonesia. Where else do you expect Convergint will deploy the remainder of the USD 145m it raised? What other markets is it particularly interested in growing in and why?
25.
Allied acquired G4S in a large deal in April 2021. Securitas acquired Stanley in July 2022, as you highlighted. Do you see more deals of that size and magnitude on the horizon, or should we expect continued consolidation of smaller players?
26.
Is the ultimate end goal for Convergint to sell to one of the players you mentioned? You mentioned the company wouldn’t sell to JCI, so presumably not, but why isn’t that the end goal? Is its ultimate goal to go public?
27.
You mentioned that there’s not a lot of USD 10m-plus players left, but just given the large amount of M&A in Convergint’s past, are there any small players you’re watching? Do any present a good bolt-on opportunity for the company or its peers?
28.
What do you view as the greatest risk to Convergint’s business or a potential disruptor to its growth outlook?
29.
On the labour shortage and compressing margins, has utilisation greatly decreased? As skilled labourers leave or retire, are we getting less-skilled workers, and then utilisation rates start to tick down? If so, how much of a drop are we seeing?
30.
What questions would you be asking Convergint management if you were back in front of it today? What questions should our clients and investors be asking?
31.
Do you have any other closing comments or questions about Convergint? Is there anything you feel is commonly underappreciated that you want to leave us with?
Gain access to Premium Content
Submit your details to access up to 5 Forum Transcripts or to request a complimentary 48 hour week trial
The information, material and content contained in this transcript (“Content”) is for information purposes only and does not constitute advice of any type or a trade recommendation and should not form the basis of any investment decision.This transcript has been edited by Third Bridge for ease of reading. Third Bridge Group Limited and its affiliates (together “Third Bridge”) make no representation and accept no liability for the Contentor for any errors, omissions or inaccuracies in respect of it. The views of the specialist expressed in the Content are those of the specialist and they are not endorsed by, nor do they represent the opinion of, Third Bridge. Third Bridge reserves all copyright, intellectual and other property rights in the Content. Any modification, reformatting, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from, transferring or selling any Content is strictly prohibited
