Stung by investor indifference and calls to eschew acquisitions in favour of debt reduction, Quebec entrepreneur Stéphan Crétier is leading a buyout of his security services firm, Garda World Security Corp., so he can start cranking up the deals again.
“We can wait here and deleverage slowly … or you turn around and say we want to accelerate the growth,” Mr. Crétier said Friday as he unveiled a $300-million buyout of Garda by management and British private equity firm Apax Partners LLP.
“We want to look at the menu [of potential acquisitions] in a more dynamic way,” he said. “It’s almost impossible to do that as a publicly traded company.”
Apax is offering $12 a share, except for stock owned by management, including Mr. Crétier’s 25-per-cent stake. They instead will roll over their shares into equity of the private company. Total value of the proposed deal, including assumed debt, is about $1.1-billion.
The deal comes at a pivotal time for Garda, founded by Mr. Crétier in 1995. In the mid-2000s, it embarked on a torrid debt-fuelled acquisition spree, capped with a $391-million deal for California-based ATI Systems International in 2007. Garda emerged as a global player with the second-largest cash-handling business in the United States, behind Brink’s Inc.
But the ATI deal quickly soured; Garda sued ATI’s former chief executive officer for allegedly misrepresenting its financial situation, while he sued for wrongful dismissal (the latter dispute was settled in 2010). Garda’s financial performance collapsed in mid-2008, and its stock fell by more than 90 per cent that autumn. A difficult debt restructuring followed, sparing the company but leaving it on a short leash with lenders, and in the bad books of investors.
In the past year, Garda’s results have steadily improved – including a solid second quarter released Friday – partly driven by a surge of demand for security services in the Middle East and Afghanistan. It has also started to make acquisitions again, pushing its debt higher. Debt now stands at $639-million, or 4.2 times its operating profit – too high for many investors.
That clearly frustrated Mr. Crétier. “The message that’s been sent and repeated and repeated [by analysts and investors] is Garda needs to deleverage [for the stock to rise],” he said. “What we’re saying today is that’s not going to happen. We’re in a growth mode.”
Apax spokesman Ben Harding said: “We were impressed by the very strong management team, strong potential for international growth and potentially some consolidation in the sector,” adding “the business case doesn’t hinge” on further acquisitions.
This is the first investment in the security business for Apax, which has previously invested in Canada’s Smart Technologies Inc., and bought divisions from Canada’s Yellow Media Inc. and Thomson Reuters Corp.
The deal is expected to close in late October. Mr Crétier said Garda could again go public when markets are more favourable.
With files from reporter Tim Kiladze in TorontoReport Typo/Error