The Wackenhut Corporation History

Company Perspectives:

Year after year, The Wackenhut Corporation delivers unrivaled business services to a growing list of commercial, industrial and government organizations. The company was included in Fortune's list of "America's Most Admired Companies" in 2001, and Forbes's most recent "Platinum 400" list of "America's Best Big Companies." These distinctions are testament to Wackenhut's reputation for excellence and its continuing pursuit of quality and professionalism.

Key Dates:

1954:

Wackenhut Corporation is founded in Miami as Special Agent Investigators, Inc. by George R. Wackenhut, a former special agent of the Federal Bureau of Investigations (FBI), and three other former FBI agents.

1958:

George Wackenhut buys out his partners and incorporates the company as The Wackenhut Corporation, moving the company to Coral Gables, Florida.

1962:

The acquisition of General Plant Protection Company allows Wackenhut to expand its operations beyond Florida, into California and Hawaii.

1964:

Wholly owned subsidiary Wackenhut Services, Inc. (WSI) is formed specifically to handle the company's government contract business

1966:

Wackenhut goes public, listing shares on the American Stock Exchange; company opens its first international office in Venezuela.

1985:

Company begins first Job Corps Centers operations.

1987:

Wackenhut enters the growing private correctional facilities business, forming Wackenhut Corrections Corporation (WCC) as a wholly owned subsidiary.

1994:

WCC goes public, selling approximately 26 percent of its stock, with the remainder under Wackenhut Corp.'s control.

1997:

Wackenhut Corporation launches Oasis Outsourcing, a professional employer organization (PEO).

2002:

Wackenhut Corporation becomes a subsidiary of Group 4 Falck, a Danish security firm.

Company History:

Headquartered in Palm Beach Gardens, Florida, The Wackenhut Corporation is a wholly owned subsidiary of Group 4 Falck A/S, a Danish security firm. It is a longtime leader in the security services industry, providing highly trained armored security forces for nuclear power plants, airports, and embassies. The company also offers a range of other services, including security consulting, management, training, emergency support, and fire deterrence. Throughout the 1980s and 1990s Wackenhut also established a strong presence in the private prison and employer services industries. However, the company's merger with Group 4 Falck in 2002 forced it to shed many of its subsidiaries and streamline its operations considerably.

Company Origins: 1950s

Wackenhut was founded in Miami in 1954 as Special Agent Investigators, Inc. by George R. Wackenhut, a former special agent of the Federal Bureau of Investigations (FBI), and three other former FBI agents. The company's initial focus was in investigative services; by 1955, however, the company began to provide physical security services as well, winning a contract with National Airlines of Miami, which lasted for the next 20 years. In 1958, George Wackenhut bought out his partners and incorporated the company as The Wackenhut Corporation, moving the company to Coral Gables, Florida. In that same year, Wackenhut received its first major contract from the Martin Company (later known as Martin Marietta) to provide security and protection services; later contracts with Martin, in 1961 and 1963, brought Wackenhut security guards to Martin's Titan missile sites.

By 1959, the company was posting revenues of more than $1 million, and by 1961 the company employed more than 1,300 people. The acquisition of General Plant Protection Company in 1962 allowed Wackenhut to expand its operations beyond Florida, into California and Hawaii. One of the company's first government agency contracts followed in 1963, when the company, through its Wackenhut Services, Inc. (WSI) division, was hired to guard NASA's Lewis Research Center in Cleveland. The next year, Wackenhut won a $44 million, seven-year contract at the Kennedy Space Center. WSI began a contract for the Nevada nuclear testing site of the Atomic Energy Commission (later the Department of Energy) in 1965, with renewals through 1997. There, WSI deployed "a paramilitary operation," as noted by its vice-president of Nevada Operations in Security Management, comprising "a very heavily armed force of individuals who receive specialized SWAT-type training, and armored vehicles and helicopters."

Expansion and Diversification: 1960s-80s

Wackenhut went public in 1966, listing initially with the American Stock Exchange, and, since 1980, on the New York Stock Exchange. That same year Wackenhut went international, opening an office in Venezuela, followed over the next several years by offices in Columbia, Ecuador, and Brazil. By 1971, Wackenhut had opened offices in Italy, France, and the Dominican Republic as well. This same period saw the company continuing to expand through acquisitions of other security services-related firms.

When construction on the 800-mile Alaska pipeline began in 1974, Wackenhut, through its subsidiary Ahtna AGA Security, Inc., provided guard and security services, and later, with the completion of the pipeline, continued to guard the pipeline and nearby oil reserves and facilities through the 1990s. In 1976, another division, Wackenhut International Inc., won a contract for providing the security design and installation at Jeddah (Saudi Arabia) International Airport, then the largest airport in the world. During this time Wackenhut sold off its U.S. divisions specializing in "central-station" security, where guards monitored properties from a centrally located office, a market that had proved unprofitable.

By the early 1980s, Wackenhut had grown to include more than 20,000 employees and over $200 million in revenue. At this time, the company sought to diversify its services, in part because of the low margins available through its guard and security services. Increasing competition, with over 10,000 security firms operating in the United States, were another factor in Wackenhut's efforts to diversify. Although the guard services would remain the company's core business, the company expanded to include strike support services, in which Wackenhut provided security and other services to allow companies to continue to operate while their workers were on strike. Another area Wackenhut attempted to develop was the privatization of emergency, police, and fire services, replacing communities' publicly funded services with its own trained personnel; however, this effort met with only limited success. In addition, Wackenhut continued to market its airport crash, fire, and rescue teams. Further acquisitions, in 1979 of Stellar Systems, Inc. in California, and in 1980 of Indentimat Corp. in New York, enabled Wackenhut to expand its high-technology security operations as well.

Wackenhut won several major government contracts in the 1980s. Its 1983 three-year, $81 million contract at the Savannah River Site in South Carolina was the largest paramilitary security contract ever awarded by the U.S. government. A $5 million, three-year contract in 1984 to create and manage the Department of Energy's Central Training Academy in Nevada continued to be held by the company through 1995, when it was renewed through the year 2000 for $58.6 million. Another significant, and lasting, contract began in 1986, when Wackenhut was awarded $25.3 million for security services at the DOE's Strategic Petroleum Reserve.

During the 1980s, financial pressures, as well as overcrowding, led to the privatization of increasing numbers of state and federal corrections facilities. Wackenhut ventured into this new market when WSI was hired to design, construct, and operate an Immigration and Naturalization Service detention center in Colorado in 1987. In the next year, Wackenhut formed Wackenhut Corrections Corporation (WCC) as a wholly owned subsidiary and received contracts for two 500-bed facilities in Texas. WCC went public in 1994, selling approximately 26 percent of its stock, with the remainder under Wackenhut Corp.'s control. By the end of 1994, the number of prison beds under its direction had totaled 14,000. With annual revenues of $105 million, consultant and construction fees generating an additional $80 million, and profit margins as high as 10 percent, corrections became one of the most successful areas of Wackenhut's business. Facilities under WCC's control included prisons in Australia, England, and Puerto Rico, as well as in six states in the United States, with ten facilities in Texas alone. A contract in December 1994 for the construction and management of a 1,300-bed medium-security prison in Florida provided WCC with $50 million, its largest contract as of that date.

Maintaining a Focus on Long-Term Growth in the 1990s

Despite continued rises in revenues, Wackenhut's profit margin decreased at the beginning of the 1990s to 1.3 percent, a decline from the 2.5 percent in the early 1980s. Florida Trend ascribed this decline to Wackenhut's focus on long-term, rather than short-term, opportunities as it entered new markets and new services. In contrast to its chief competitors, where the security guard market accounted for 90 percent of their business, Wackenhut had diversified to the extent that its security services generated only 43 percent of its revenues. Government services, including airport and municipal fire and rescue, accounted for 35 percent, with an additional 10 percent of revenues arising from its DOE and corrections contracts. Wackenhut had become less dependent on the traditionally low-margin guard business, while supporting its newer projects with this core. Accordingly, Wackenhut's emphasis on diversification has been praised by Find/SVP of New York as "a conscious decision to forego short-term profits in favor of long-term gains." During this time, also, Wackenhut sold off two of its less profitable divisions, Stellar Systems, Inc. in 1991, and, in 1994, Wackenhut Monitoring Systems, which had lost $1.5 million in 1993.

Additional difficulty for Wackenhut came in 1992 when it was named in a lawsuit, along with the Alyeska Pipeline Service Company, the consortium of oil companies operating the Alaska pipeline, for illegally spying on an environmental activist. A government report prepared by Democratic members of the House Interior and Insular Affairs Committee further charged Wackenhut and Alyeska with attempting to interfere with the congressional investigation into their activities. However, the report's conclusions were challenged by Republican House members, and the lawsuit was settled for undisclosed terms and with neither Alyeska nor Wackenhut admitting guilt. Apart from the bad publicity and a $10,000 fine from the State of Virginia, the incident was described, in Florida Trend, as a "short-term problem for a company whose thinking is slanted toward the long term."

By the mid-1990s, Wackenhut's organizational structure comprised three main components: domestic operations; government services; and international operations. Domestic operations provided--in addition to the traditional uniformed guard and other physical security services--such services as loss prevention analysis and system design, employee and prospective employee screening, and insurance inspections, fraud investigations, strike support, and transportation of assets. The rise in airplane hijackings in the 1970s and the continued threat of terrorism brought Wackenhut into the country's airports, where their guards were charged with screening passengers prior to boarding. The Nuclear Services Division of Domestic Operations were providing physical services to 16 nuclear power generating plants by 1995. The Domestic Operations Group also oversaw Wackenhut's Alaska Pipeline activities. With the increasing privatization of corrections facilities, Wackenhut Support Services and Creative Food Management, which offered specialized foodservices to correctional institutions, increased revenues from $3 million in 1989 to $25 million in 1994.

Wackenhut's Government Services Group included the wholly owned subsidiaries Wackenhut Services, Inc. (WSI), which was formed in 1964 specifically for Wackenhut's government contract business; and Wackenhut Education Services, Inc., through which Wackenhut operated Job Corps Centers for the U.S. Department of Labor. Wackenhut Corrections Corp.'s activities were also included under the Government Services Group. In addition to the Nevada Nuclear Test Site, the Savannah River Site, the Strategic Petroleum Reserve, and the nuclear manufacturing plant in Rocky Flats, Colorado, WSI expanded beyond the Department of Energy to other government agencies, particularly the U.S. Army, for which WSI provided security, maintenance, hazardous waste disposal, and fire protection at three ammunition plants. WSI continued to provide private police, fire, and emergency services to municipalities as well as in major airports; a July 1995 contract with the state of Hawaii awarded Wackenhut nearly $35 million for security at eight airports over the next three years. The trend toward privatization included education as well. In 1984, the DOE contracted WSI to establish and then operate its Central Training Academy in New Mexico, and in 1985 the company began its first Job Corps Centers operations.

The International Operations Group of Wackenhut, through its subsidiary Wackenhut International Incorporated, extended Wackenhut's domestic services to six continents and more than 50 countries, including placing security guards at 18 U.S. embassies and missions. New markets opened for Wackenhut in the 1990s with the fall of the Berlin Wall and the increasing normalization of relations with China. Wackenhut opened offices in Russia and in the Czech Republic and began to develop contacts with mainland China through its Hong Kong office. Additional expansion came as the company entered India and Pakistan and gained new embassy security contracts with the U.S. State Department. The 1994 acquisition of 60 percent ownership in SEGES extended Wackenhut into the Ivory Coast, described in the company's 1994 annual report as a "strategic move." Other services offered by the International Operations Group included central alarm station services, executive protection, armored car services, vehicle location and recovery, and privatized forestry, toll collection, corrections, and police and fire support.

As late as 1995, The Wackenhut Corporation remained under the control of George R. Wackenhut, its founder, who functioned as chairman of the board and chief executive officer and held 50 percent of the company's stock. In the early 1990s, however, George Wackenhut turned the presidency of the company over to his son, Richard R. Wackenhut, who also functioned as the company's chief operating officer. The company had also seen a shift in management, away from a personnel traditionally recruited from among retired police and military officers, to those with business school and established business backgrounds, with an average age in the mid-40s. The privatization of corrections facilities remained an important Wackenhut market, and the company continued to look to the privatization of government functions for new markets for its services. With a reduction in its long-term debt, from $57 million in 1993 to $39 million in 1994, and a credit agreement allowing the company as much as $60 million in new loans, Wackenhut was poised to continue its program of expansion and diversification.

Into the 21st Century: Diversification, Consolidation, and a Major Merger

In the mid-1990s, the private prison industry seemed on the verge of explosive growth. With national inmate populations at all-time highs, and most states feeling the pinch of rising incarceration costs, the privatization lobby, notably Wackenhut Corrections and its principal competitor, Corrections Corporation of America, appeared to offer a cheaper, and ultimately more rehabilitative, alternative to the traditional prison system. In mid-1996, prison officials in several states, including Florida, California, Texas, and New Mexico, conducted studies to determine whether or not prison privatization made economic sense. The preliminary findings in Florida were particularly encouraging for Wackenhut: in a report filed in November 1996, the Florida Corrections Commission estimated that the state would need to devote $200 million to expanding its prison capacity, and that privatization was the most cost-effective way to address this increased demand. In response to the report, Wackenhut Corrections produced a 28-page proposal outlining its plan to systematically privatize all of the state's prisons, region by region. At around this time, Wackenhut entered into a contract with New Mexico to build 3,400 new prisons in the state.

However, this potential business opportunity abruptly evaporated the following year. By mid-1997, most studies showed that the cost-efficiency of privatization remained undetermined, and that the push for more private prisons might be premature. In Florida, new data revealed a growing pattern of leniency in the state's judicial system, resulting in a slower increase in the state's prison population; at the same time, new laws allowed for an increase in the state's existing prison capacity to 150 percent, obviating the need for the construction of new facilities. Florida legislators were also daunted by the scope of Wackenhut's proposal, which struck most as too large an investment for an unproven business model. Florida's position reflected a nationwide trend; even New Mexico scaled back its original contract with Wackenhut by nearly a third. This sudden shift delivered a major hit to the subsidiary's stock, which dropped to $15.50 in November, down from $45 the previous June. The parent company's market value suffered as well; share prices of Wackenhut Corporation fell below $15 during the same period.

Still, these setbacks proved to be temporary, and overall The Wackenhut Corporation enjoyed consistent profitability throughout the late 1990s. For the third quarter of 1996, the company saw its profits increase by 50 percent, from $2 million to $3 million, over the previous year. Equally encouraging, by mid-1997 the private prison industry had rebounded, boosting shares in Wackenhut Corrections more than 80 percent. In early 1997, Wackenhut Corporation also took steps toward entering the burgeoning field of employer services by establishing a professional employer organization, or PEO, in Denver, Colorado. In April of that year Wackenhut launched a new subsidiary, Oasis Outsourcing, in south Florida. The company further expanded its new niche with the purchase of Jim King Cos., a Jacksonville, Florida-based PEO, in May 1997 for $11.5 million. Eventually, the company hoped to develop similar businesses in Texas and California. Meanwhile, Wackenhut Corrections continued to flourish into the new century, winning $140 million in federal grants in 2000, and entering into a contract to build a maximum-security prison in South Africa. By 2002, The Wackenhut Corporation had roughly 68,000 employees worldwide.

In March 2002, after decades as an independent company, The Wackenhut Corporation announced its intention to enter into a merger with Group 4 Falck, a Danish security company. Under the terms of the deal, Group 4 Falck acquired all of Wackenhut's common stock for $573 million. The merger had its share of messes. Two shareholders filed suit against the company, charging that company insiders, who mainly possessed "Series B" stock in the corporation, stood to enjoy a much larger return than "Series A" shareholders. Even company founder George Wackenhut expressed ambivalence about the transaction, despite receiving a parting compensation package worth roughly $124 million; "it's like giving up your baby," he told reporters for the Palm Beach Post in May 2002, after shareholders finally approved the deal. As part of the merger, Group 4 Falck decided to unload its new stake in Wackenhut Corrections. To this end, in July 2003 Wackenhut Corrections entered into a share repurchase agreement with Group 4 Falck, relinquishing its rights to the Wackenhut name and paying $126 million, thereby becoming an independent company. Meanwhile, Wackenhut Corporation remained the U.S.-based subsidiary of Group 4 Falck, continuing to provide security services throughout the United States, with a staff of more than 40,000 in 2004. Although scandals concerning security failures at key nuclear facilities in the United States, which first surfaced in April 2004, threatened to undermine The Wackenhut Corporation's continued growth, it seemed a safe bet that the company would remain a leading name in the American security industry--which had grown exponentially since the September 11 terrorist attacks--well into the 21st century.

Principal Subsidiaries: Wackenhut Services, Inc.

Principal Competitors: Guardsmark, Inc.; Securicor plc; Securitas AB.

Further Reading:

• Bork, Robert H., Jr., "Big George Wackenhut," Forbes, November 21, 1983, pp. 203-6.
• Bryce, Robert, "Prison Business Booms in the US," Christian Science Monitor, August 12, 1993, p. 8.
• "Critic Settles Suit Against Alaska Pipeline," New York Times, December 21, 1993, p. 23.
• DeGeorge, Gail, "Wackenhut Is Out to Prove That Crime Does Pay," Business Week, December 17, 1990, pp. 95-96.
• Dorfman, John R., "Caught Flat-Footed," Forbes, April 12, 1982, pp. 74-78.
• Hersch, Valerie, "The Gumshoes Are Gone," Florida Trend, June 1992, pp. 65-67.
• Keller, Larry, "Good Deal? Lawsuits Say Wackenhut's Planned Sale to Danish Company Would Shortchange Most Shareholders," Miami Business Daily Review, March 14, 2002.
• Kenworthy, Tom, "Alaska Oil Pipeline Company and Security Firm Criticized," Washington Post, July 24, 1992, p. 2.
• Millman, Joel, "Captive Market," Forbes, September 16, 1991, p. 190.
• Ottolenghi, Hugo, "Wackenhut Unbound; Wackenhut Corrections Share Price Jumps with Better Industry Numbers," Miami Daily Business Review, July 2, 1997.
• Parker, Susie T., "Targets of Probe File Suit Against Alyeska Pipeline," Oil Daily, July 28, 1992, pp. 1, 8.
• Pounds, Stephen, "Danish Company Likely to Sell Prison Spinoff After Acquiring Wackenhut Corp.," Palm Beach Post, May 3, 2002.
• Seemuth, Mike, "Wackenhut Corrections Buys Freedom with Name," Miami Daily Business Review, July 17, 2003.
• Sullivan, Allanna, "Congressional Report Urges Prosecution of Wackenhut and Alyeska Over Spying," Wall Street Journal, July 24, 1992, p. 12.

Source: International Directory of Company Histories, Vol.63. St. James Press, 2004.