Brink's Home Security to go away by 2012

Thursday, June 12, 2008

RICHMOND, Va.--Brink's Home Security is going to have to find a new name by 2012.
Industry watchers were taken by surprise by the news, included in a lengthy May 30 SEC filing, that Brink's Home Security has been paying royalties (7 percent of revenue--roughly $33 million in 2007) to sister company Brink's, Inc., to use the Brink's Home Security name and will lose that privilege three years after the two companies are spun off into independent firms by The Brink's Company at the end of this year.
"Brink's Home Security is the mass marketing brand name of choice for the residential user; the Brink's Home Security name is golden," said industry analyst Jeff Kessler. "It's going to be a challenge to come up with another brand name [like Brink's]."
The branding news was greeted with enthusiasm by Brink's competitors. Russ Cersosimo, CEO of super regional Guardian Protection, called it "great news." He said Brink's is "the best run national company out there. I've admired Brink's and their numbers for years." Cersosimo said he's "not afraid to compete with them, but the challenge is competing with that name: Brink's is synonymous with security ... We welcome the break-up."
Did the hedge funds who were pushing for the spin-off, such as Pirate Capital and MMI Investments, know that the brand name would be going away? Or did they not care, figuring they'd be off to greener pastures by 2012? Thomas Hudson of Pirate was precluded from commenting because he sits on The Brink's Company board of directors. Clay Lifflander of MMI did not return calls from Security Systems News seeking comment.
Asked this question, Ed Cunningham, spokesman for The Brink's Company said, "As we went through the process, branding was always raised as an area of importance to both units."
Kessler, who's been following the company for years, said he'd never seen those royalty numbers spelled out in a filing before. He noted that The Pittston Company, which then owned Brink's, Inc., launched Brink's Home Security in 1983 and BHS did not become "profitable or revenue neutral for the first eight years." He surmised the royalty may have been a sort of payback to the Brink's, Inc.
Kessler also noted that The Brink's Company has a five-year non-compete agreement with BHS. At that time, The Brink's Company could launch another physical security company, although Kessler said he believes Michael Dan (CEO of The Brink's Company) would be more likely to enter the commercial industrial space, rather than the residential, light commercial business that BHS is in right now.
Asked if The Brink's Company intends to launch a new physical security company once the non-compete expires, Cunningham said, "All I can really tell you is that it won't happen before five years."
There's also a good chance, Kessler said, that Brink's Home Security may be acquired by another company within the next three years, which would render the branding question moot.
The rebranding issue will be a challenge, but BHS is in good shape and has steady-state cash flow--a metric Kessler considers important in determining the profitability of a security company's recurring base of business--"that's higher than any one I know of in the public market." He also said the "top notch executive team" at BHS, notably CEO Bob Allen and CFO Steve Yevich, mean the company "is in good hands."