Barnes talks 2009 market, ADT/Broadview, P1sale

PALM BEACH. Fla.—During a far-ranging discussion that touched on some areas of concern in the security alarm market, the recurring theme of Mike Barnes's Industry and Market Overview presentation at the Barnes Buchanan conference here Feb. 5 was an upbeat message that “the security industry is highly recession resilient.”

Companies are hurting in the last 12 months, he acknowledged, but “the reality is that compared to virtually every other sector of the economy, we look really good.”

Barnes sliced and diced all the usual metrics, but also spent time this year talking about some current industry events, namely the pending transaction between ADT and Broadview and the possible sale of Protection One.

In the face of economic slowdown and volatile capital markets, industry revenues were down, though “The traditional security alarm segment experienced slight growth or a small decline,” Barnes said.

For Barnes' numbers on how far the market is down, what portion of that is attributable to integrators vs. residential installers, and where RMR is moving, please see our full report on Barnes' market study in our Premium section.

On to the buying and selling: Sellers' expectations in general are more realistic, Barnes said.  In this market, sellers who are good performers “and can prove it can potentially get rewarded, bad performers will get hurt.”

As far as buyers, Barnes said there may be strategic corporate new entrants to the market, a defense contractor who wants more RMR, a telco or cable company who wants in on the residential business. “Last year, they weren't looking. That's changing,” he said. Barnes said he'd had “more phone calls in the last six months.” That said, he emphasized that these players have trouble with the industry financial dynamics, which “have an ugly effect on EBITDA” and these players are “fearful of the work required to become the dominant number two player.”

Industry nationals like ADT and Stanley are in buying mode, and “APX and Pinnacle/Devcon will be interesting to watch.”

Will ADT consider buying P1? Barnes said “they have the capacity,” but he thought there may be some concerns about a monopoly on the commercial side, given that ADT and P1 both have substantial commercial businesses.

Barnes predicted increased interest among private equity players this year, but cautioned that “they come to the table with conservative expectations.”

For Barnes' numbers on the dealer model and account acquisition and what he feels will be a reasonable price for Protection One, please see our full report on Barnes' market study in our Premium Section.