Climate ripe for start-up centrals

For nearly half a decade, the wholesale monitoring segment has been on an acquisition track with national companies spending hundreds of millions of dollars to broaden their account base and their geographic reach. But according to industry analysts, a new trend is emerging - the proliferation of scores of new companies targeting the regional and national dealer base, looking to meet the needs of independent dealers migrating from the larger companies to the smaller, more regional monitoring center. “All the mergers and acquisitions that we went through over the past few years…a lot of that is starting to fall apart,” said Steve Doyle, executive director of the Central Station Alarm Association. “As it has happened in all industries, the consolidation went too far and there is room for new companies, new players and new things cropping up.” With high profile woes at national provider Security Associates International, such as sinking stock prices and dealer dissatisfaction, to major cutbacks in ADT’s Authorized Dealer program that have caused many dealers to look for new homes for their accounts, the competition to woo these independent dealers has been heating up. Since late 2001, more than ten new wholesale central stations began operations, bringing with them an offering of yet another alternative for dealers right in their back yard or across the country. National Monitoring Center in Aliso Viejo, Calif., American Response Center in Euclid, Ohio and Total Monitoring Services in Sacramento, Calif., have all opened their doors throughout the past 12 months, while scores more have moved or expanded current operations into the wholesale monitoring realm. Telecom Cincinnati Bell launched a central station that, along with its in-house accounts, monitors on a contract basis, while two electrical cooperatives in Minnesota, Wright-Hennepin and Cooperative Response Center, expanded operations to provide monitoring on a wholesale basis. Centex HomeTeam Security also concentrated its efforts on the wholesale market recently with the sale of the majority of its installations in early 2002. One new central station with plans to begin operations in April is Integrity Monitoring Services of Minneapolis (see related story on page 23), a newly formed company founded and led by a former National Guardian employee who experienced the large scale consolidation when SecurityLink purchased that company in 1997. “There is a window of opportunity right now because I feel the larger players have lost sight of what the industry is all about,” said Mickey Fuller, founder and chief executive officer of Integrity. “The industry has cycled from that kind of (small) central station to being bought up to now coming full circle and reopening the smaller station.” While traditionally a capital intensive business, some barriers to entry have been lowered in the form of less expensive equipment, including the automation software and falling prices of hardware, said Carl Root, marketing services manager for Monitoring Automation Systems, an automation software provider in Irvine, Calif. Root said his company has seen a significant increase in activity in the wholesale sector over the past 12 to 18 months. “Smaller players can provide a local level of service that allows them to specialize and work closely with their customers,” Root said. “As a result, there is always room for smaller players in a broad market.” Despite the cyclical nature of the security market, one of the constants in the industry is the ability of the smaller, family owned businesses to weathered consolidation or acquisition trends, Doyle said. When he joined the CSAA more than a decade ago, “there were 12 or 13 national companies….and now we are down to about four,” he said. “It’s a changing industry, but it didn’t change in the way some thought it would, that a few majors would gobble up all the business out there,” he said. “What seems to stay the most stable is the independent and family owned central station, who have not only survived but thrived in many ways.”