ADT to acquire SST, Intercon

Thursday, April 17, 2008

BOCA RATON, Fla.--ADT announced on Monday its intention to acquire FirstService Security, a division of $1 billion service firm FirstService that operates as SST in the United States and Intercon in Canada. The two operations both specialize in high-end security integration for verticals like petro-chemical facilities, Fortune 1000 companies and university campuses, but Intercon also operates a central station and a guard force. ADT's parent company, Tyco International, and FirstService's board of directors have agreed to a $187 million cash purchase agreement that regulators must now approve.
SST and Intercon generated roughly $200 million in 2007 revenue, have 17 offices and 2,400 employees, and represent "an important strategic acquisition," said John Koch, ADT president. "We believe integration will play a more important role [in the security industry] going forward because the traditional security market is changing. The ability to put an Internet address on security devices has led to the sometimes overhyped convergence of physical and logical security, and in a converged world, integration plays a much more important role."
"It's a good thing for [SST'S] employees, good for their clients, good for ADT, and good for First Service," said John Nemerofsky, former head of SST's global accounts division and currently the founder of search firm and consultancy TSS International. It will allow FirstService to renew focus on its property management services core, lend SST clients ADT's global footprint for more local service and attention, and give SST's employees "a whole new world of opportunity." Further, he said, "SST is known for being a large integrator, but technically and from a management standpoint they rank at the top of the delivery channel. ADT wasn't a true integrator and customers didn't see them that way, and SST really solidifies that for them."
ADT will gather its technologically advanced integration customers with many of SST/Intercon's customers into a new integration group within ADT, which FirstService Security chief executive officer Frank Brewer will now oversee, reporting directly to Koch.
"We're generally interested in large, complex applications," said Brewer. Brewer listed some of his current clients as University of Pennsylvania, Verizon, Ernst & Young and Shell Oil. FirstService unified the SST and Intercon operations in early 2004, when Brewer was appointed chief executive officer of FirstService Security. At the time, the companies represented $130 million and had 12 offices.
Koch said ADT would keep Intercon's guard force in operation--"It's a very good business for them and we plan on keeping it that way"--but is still unsure whether that guard force would be brought under the ADT brand. All other SST/Intercon branding will disappear, however. The guarding and central station operations represented roughly 10 or 11 percent of FirstService Security revenue, said Brewer.
However, noted Nemerofsky, "they have such a strong client following that it's almost like recurring revenue. They don't even bid jobs, they just come right back to SST."
This may just be the beginning of ADT's commercial play. Nemerofsky speculated that "this is a platform for ADT to acquire other integrators and have some place to put them. If they purchased a small integrator, they would drown in ADT ... I think this is a huge starting point and I feel they'll aggressively pursue acquisitions."