Since the Sept. 11 terrorist attacks, security has been at the front of everyone’s minds, including the executives at Mallon & Associates. In a unique proposal, the New York-based mergers and acquisitions adviser and publisher of Mallon’s Security Investing is looking for a private equity firm to partner with in the hope of investing $100 million of the firm’s capital into the security industry.
“We are not raising a fund. We are looking to hook up with an existing private equity fund,” says Jack Mallon, a partner with Mallon & Associates and a 25-year veteran of the security industry. “Similar deals have been done in environmental investing and in some other areas. We have never done this, but we are very involved in the security industry, which is diverse and fragmented and could greatly benefit from private equity.”
Mallon & Associates plans to invest $10 million to $50 million of its partners’ capital into companies either in the form of a buyout, recapitalization or growth financing, taking a majority stake in the company or a significant minority stake. According to a source familiar with the plan, most investments will be in private companies that take in between $25 million and $150 million in revenue.
Although Mallon & Associates is still in the early stages of identifying a private equity firm that will buy into the idea, Mallon finds comfort in the fact that some big players already have dumped money into the sector.
Some heavyweights, including JPMorgan Partners and Apax & Co., have committed millions to the sector. “These firms have been in and out of the industry on an ad-hoc basis,” Mallon explains. “But we have a perspective that most private equity groups don’t have because of their lack of experience with this industry.”
Mallon’s security background and relationships with security executives will most likely help the firm generate deal flow. Prior to founding Mallon & Associates seven years ago, Mallon was chief executive of IBI Security Services Inc., a company that provides armored carrier transport for the Federal Reserve Bank of New York and other banks.
At Mallon & Associates, he is joined by Robert Rutkowski, a partner at the firm with 20 years of executive management experience and five years of investment banking experience in security.
Before Sept. 11, the annual growth rate of the security and crime control industry was 7% to 9% and amounted to a $100 billion market, according to Deutsche Bank AG and The Freedonia Group, a Cleveland research company. The numbers have increased during the five months since the tragic terrorist attacks, but studies are still being done to determine by exactly how much.
“The result of 9/11 is the need for more security,” Mallon says. “Companies want to protect what they have and security is the center of that.”
Danielle Fugazy can be contacted at Danielle.Fugazy@tfn.com