A structured framework for evaluating contract quality, licensing compliance, workforce stability, and operational risk in lower middle market security services acquisitions.
Find Security Services Acquisition TargetsSecurity services businesses offer recurring contract revenue and essential-service positioning, but acquisitions carry real risk from labor volatility, licensing complexity, and client concentration. This guide helps buyers systematically evaluate a target across financial, operational, and compliance dimensions before closing.
Validate revenue quality, EBITDA sustainability, and contract durability before advancing to deeper diligence.
Recalculate trailing 3-year EBITDA removing above-market owner salary, personal expenses, and non-recurring costs to establish true earnings power.
Review all active contracts for length, renewal clauses, assignability provisions, and whether any single client exceeds 20% of revenue.
Confirm each contract's bill rate covers fully-loaded labor costs including wages, overtime, taxes, and workers' comp, ensuring positive margin per site.
Confirm the business operates legally across all jurisdictions and that coverage transfers cleanly to a new owner.
Verify the company entity license, individual officer licenses, and armed guard permits are current, in good standing, and transferable upon ownership change.
Confirm general liability, workers' compensation, and professional liability coverage limits are appropriate and whether policies follow the business or require reissuance post-close.
Pull OSHA records, active litigation, and incident reports. Unresolved use-of-force or negligent-hiring claims represent significant post-close liability exposure.
Assess workforce stability, operational infrastructure, and technology capabilities that determine post-acquisition performance.
Turnover above 100% annually signals systemic HR problems. High overtime reliance artificially inflates labor costs and signals chronic understaffing requiring immediate capital.
Identify all technology platforms used for shift scheduling, incident reporting, and client portals. Assess licensing ownership, integration capability, and upgrade requirements.
Determine whether operations, client relationships, and scheduling can function without the seller. Absence of supervisory staff creates serious transition and retention risk.
Verify the Security Services acquisition qualifies for SBA financing, the purchase price is supportable by the verified cash flow, and the deal structure protects the buyer's downside.
Confirm the Security Services meets SBA 7(a) eligibility requirements: the business is for-profit, U.S.-based, within SBA size standards, and the buyer meets personal financial requirements. Some industries have specific SBA restrictions — verify before LOI.
Model verified normalized EBITDA against projected SBA loan payments at current rates. A $1M SBA 7(a) loan at 10.5% over 10 years costs approximately $13,000/month. The Security Services must generate at least 1.25x debt service coverage after a market-rate manager salary to pass underwriting.
Confirm the seller note is properly subordinated to the SBA loan and goes on 24-month standby as required by SBA rules. If an earnout is included, define exact measurement metrics, time period, and dispute resolution process before signing the purchase agreement.
Before signing a Letter of Intent, request these documents from the seller. Missing or incomplete items are a red flag — not a reason to proceed without them.
Lower middle market security firms typically trade at 3.5x to 6x EBITDA. Higher multiples reflect diversified long-term contracts, armed or specialized services, and strong management teams operating independently of the owner.
Yes. Security services businesses are SBA 7(a) eligible. Expect to inject 10–20% equity, with sellers often carrying a 10–20% note on standby. Licensing transferability and clean financials are critical for SBA lender approval.
Customer concentration is the top risk. A single client representing 30–40% of revenue that holds a month-to-month contract can collapse deal value overnight if lost during or after transition.
A 6–12 month transition consulting agreement is standard. Client relationships, licensing continuity, and workforce stability all benefit from a structured handoff, especially when the owner holds key government or institutional relationships.
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