G4S guards patrol the concrete corridors of prisons, the spiked iron perimeters of embassies and the glass lobbies of offices. Now the world’s biggest security company is defending its own walls.
In September, UK-based G4S received a £2.9bn hostile takeover bid from GardaWorld, its smaller Canadian rival. California-headquartered Allied Universal Security Services has since indicated that it might offer at least £3.3bn. G4S, whose market value has risen to £3.5bn, has rejected both as too low.
By the end of this week GardaWorld’s bid is due to expire, forcing it to raise it or walk away. Any firm offer from Allied would probably be made within days of a higher GardaWorld bid, though a move by the US company is far from certain.
The battle marks a critical juncture for G4S, which traces its roots back to a guarding business founded in Copenhagen in 1901 and has since become one of the British government’s largest contractors.
Over the past three decades, the company has taken the model of hiring security guards to do jobs once handled by state employees around the world — but has also been embroiled in a series of scandals, from a settlement with prosecutors over electronic tagging fraud to accusations of violence at youth detention centres.
Terror attacks, corporate and government cost-cutting, and a fear of crime are driving growth in the low-margin security business, where at least two-thirds of costs are staff and competitors are often small, unregulated companies, according to Freedonia, the market analysts.
For GardaWorld and Allied, buying G4S would widen their geographical footprint — and scale — at speed. Both are smaller than their London-based rival: while G4S’s revenues were £7.8bn in 2019, Allied’s reached $8.3bn (£6.2bn) and GardaWorld’s were C$3.7bn (£2.1bn) in the year to July.
G4S’s uniformed staff, with their black and red epaulettes, are already in fast-growing markets, such as China and India, which will account for 23 and 14 per cent of forecast growth, respectively, Freedonia said.
The US, the biggest security market worldwide, is also significant. G4S entered the US after the 9/11 terror attacks and has since become the country’s fourth-biggest operator, delivering 10 per cent annual revenue growth.
Stephan Crétier, the hard-hitting chief executive of GardaWorld, is a formidable foe for Ashley Almanza, the bookish accountant at the helm of G4S.
Fierce in his determination to seal a deal, Mr Crétier has launched a bitter attack on the company, calling G4S “deeply troubled” and in need of new management. “G4S has lost its way,” Mr Crétier told the Financial Times. “Its management lacks ownership of the business and deep understanding of the industry’s complexities.”
Mr Crétier pointed to a £276m pension deficit and a host of lawsuits, including allegations that G4S provided support to the Taliban in Afghanistan, a claim G4S says is “without merit and intends to vigorously dispute”. Restructuring and one-off charges related to litigation has cost G4S £1.6bn since 2013, more than £200m a year.
Mr Almanza has hit back, saying: “It is absolutely clear why GardaWorld needs G4S but this should not be at the expense of our shareholders and stakeholders.”
On Wednesday, G4S’s chairman John Connolly again told shareholders to reject GardaWorld’s bid, saying the UK group “has a bright future as an independent company” and intends to resume its dividend next year.
GardaWorld annoyed G4S executives with two initial lower offers in June, setting the scene for this autumn’s hostile battle, one person briefed on the matter said.
The Canadian group’s high leverage — its debts are about seven times its underlying earnings — could hamper its ability to pay more without diluting Mr Crétier’s stake in the business.
“Crétier wants to be the number-four security player and now GardaWorld is number six and the only way he’s going to close that gap is by acquiring a lot of mom-and-pop shops or acquiring G4S,” said Tyler Tebbs, analyst at Louis Capital.
Backed by private equity firm, BC Partners, GardaWorld has grown rapidly through acquisitions — nine purchases in the year to January — but there is a danger of the company becoming too complex. An investigation by the Tampa Bay Times reported that it took “dangerous shortcuts” in its armoured trucks businesses, resulting in a series of crashes. GardaWorld has called the report unfounded.
Allied’s interest has provided Mr Almanza an alternative to an increasingly aggressive approach from Mr Crétier.
Since G4S rejected Allied’s first approach, relations have warmed, two people close to the talks said. G4S’s senior managers, who have been the target of Mr Crétier’s attacks, would favour an Allied bid over GardaWorld because they “want to avoid Crétier at all costs”, one person involved in the process said.
G4S said it would “simply” take the option that delivered the best value, be it one of the bids or remaining independent.
While its shareholders have shunned Mr Crétier’s bid, they have also failed to fully rally behind Mr Almanza. “We are open to a deal but it has to be at a fair price,” said Sue Noffke, head of UK equities at Schroders, G4S’s largest investor.
Mr Almanza has stepped up his defence of G4S in recent days, selling its vision of a high-tech future away from its army of low-waged security guards, which accounts for 90 per cent of its work.
The company uses iris and fingerprinting technology to monitor incoming traffic for the Pentagon, and has said that its cash management business, which provides services for Walmart, should be compared to a fintech company.
G4S was an unpopular household name and a sprawling mess of unintegrated acquisitions when Mr Almanza took over as chief executive in 2013, just months after it had failed to deliver enough security guards for the London Olympics.
Since then he has shrunk the company from 620,500 staff at its peak to just 530,000 now, and sold off most of its cash-handling business.
Faced with high-profile public protests, Mr Almanza quit controversial contracts, including work installing security equipment at West Bank prisons for the Israeli government, and a job providing cleaners at the US detention centre at Guantánamo Bay.
But the run of bad news has continued. Last year the UK government stripped G4S of a contract to manage Birmingham prison seven years early, after inspectors found it “exceptionally violent”.
The company’s share price, which stood at 246p when Mr Almanza took over, has fallen to around 223p. The chief executive has taken nearly £20m in pay and perks in that time, while G4S has paid £1.2bn in dividends, most of it out of debt.
Mr Almanza has insisted that G4S is at an “inflection point”, poised for growth under its current management. But Stephen Rawlinson, analyst at Applied Value, said he had “failed to get the turnround he wanted”.
“He has downsized the business, not grown its strengths.”
Last week G4S’s share price rallied, suggesting that investors have faith in a bid.
Other than a change of uniform, a takeover may not make much difference to G4S’s security staff. But, for Mr Almanza and his team, getting out of Mr Crétier’s hostile clutches would be the ultimate great escape.
