Covert offers look at HSM’s future

Friday, April 1, 2005

WEST PALM BEACH, Fla. - HSM, formerly Honeywell Security Monitoring, is in the midst of relocating 31 of its 45 locations before the end of this month, just one of numerous changes the security company is undergoing now that it is under new ownership.

Jim Covert, chairman and chief executive officer of HSM, detailed a string of plans during a candid speech at the Barnes Buchanan Mallon Conference in early February.

In his speech, Covert said HSM plans to increase its sales force from 100 to 200 people in one year, double its recurring monthly revenue to $16 million within three years and continue to compete in the national account market. The company may also relocate its Minneapolis and Santa Ana, Calif., central stations to near its Lisle, Ill., operating headquarters or its Jupiter, Fla., corporate office.

“Honeywell is a great company. It had 800 great employees,” said Covert. “But it wasn’t given the resources to do what it’s capable of doing.”

Instead, HSM, under former owner Honeywell and operating as Honeywell Security Monitoring, saw its revenue and employee base decline over the years. In 2000, when Honeywell first announced plans to sell the business, it reported 1,400 employees and 62 locations. By the time new owners GTCR Golder Rauner came onboard in July 2004, the company employed 800 people and operated 45 locations.

“The company had gone backwards every month for four years,” said Covert.

In a few short months, Covert said the business has already turned a corner. The company’s attrition rate reduced by one percent from 14-percent gross to 12.7 percent. And with little marketing effort, the company is signing an average of two to three national customers - businesses with more than 150 locations - each month..

Security industry analysts consider the new owners for HSM, and the added emphasis placed on growing the company, a positive move for the industry.

“While they will ultimately be formidable competitors, our belief is that most smaller dealers benefit when larger players are disciplined in their pricing and focus on the value of higher quality systems,” said Mike Barnes, partner of Barnes Associates. “Additionally, HSM’s success in this area will be a positive signal to the capital markets, which the industry needs in order to support long-term growth.”

Since GTCR bought the business last year, HSM has already gone through a number of changes. The company changed its name from Honeywell Security Monitoring, hired Covert to run the business and began separating the security business from its one-time parent company’s operations.

Not only did this include establishing its own headquarters to handle fleet management, real estate and buying supplies, but it also moved onto its own computer network. And, in terms of branches, the security company is moving 31 of its 45 locations to new offices to separate it from its former parent company. Fourteen locations will stay put, since they are the larger business in locations when compared to its Honeywell counterpart.

All this shoring up could pave the way for numerous options for HSM in the future, including a possible sale within a few short years.

“To sell this thing, we have to be totally disengaged from Honeywell,” said Covert.

While Covert admitted he is “ a consolidator, not a long-term operator,” he did not rule out the possibility that the current owners could take it public or retain the business.

“It doesn’t mean we have to get out,” he said. “If we’re making a lot of money, we could stay in.”