Criticom execs to take monitoring firm public

Wednesday, January 1, 2003

ALBANY, N.Y. -Criticom International in November filed documents with federal securities officials for an eye-popping $100 million initial public offering, an attempt primarily to reduce the monitoring company’s debt load and to raise more capital to add to its dealer base.

According to the company’s S-1 registration statement filed with the Securities and Exchange Commission, Criticom’s operations would be known as Integrated Alarm Services Group and be based here. Principals are Tom Few, chairman and chief executive officer of Criticom International and co–CEO of IASG and Timothy  McGinn, CEO IASG, chairman of the board and an executive officer of McGinn, Smith. That firm is also serving as the underwriter of the offering. Officials at the investment firm did not return phone calls for comment by press time.

Criticom officials said that after the offering occurred, the company’s new status as a publicly traded entity would be nearly transparent to its dealer customers and its monitoring operations. The only difference would be more funding for dealer contracts as well as an increased visibility and leverage which the company will use to form strategic partnerships, adding new services for its customers, Few said.

“A major portion of the offering will be to pay down debt, and the balance will be more capital for our dealer base,” Few said.

At the anticipated $9 to $11 per share, the $100 million garnered would be used to pay down about $77 million of the company’s debt. Creditors include $27.7 million owed to Key Bank, $15.2 million of junior debt to various lenders, $9.5 million of Payne Junior Debt, $5 million of senior debt to Security Leasing Partners, now known as SLP Capital, and other various individual lenders.

“The majority of the debt is on the financial side for providing loans and purchasing contracts,” Few said. The $77 million also includes the purchase of up to $20 million in alarm accounts, approximately 25,000, that the company has signed non-binding letters of intent to purchase.

Industry analysts are not putting much stock in current market conditions nor the market’s general view of the alarm monitoring sector, while Criticom’s financial status leaves another big question mark hanging over the company’s declaration of intent to go public.

“I think the idea of a big successful wholesale monitoring business can make some sense, but is it something that can succeed with a $100 million IPO? I think that’s a long shot,” said John Mack, president of USBX, an advisory firm in Santa Ana, Calif. “They clearly need an equity infusion to run the business, and a company that needs an equity infusion to manage their poor business today is not a candidate for an IPO.”

According to the filing, the company posted a loss of about $1.8 million on $20.6 million in revenue for 2001.

The track record of monitoring companies in the public markets have “tainted” the segment for investors, such as Security Associates International, which faces delisting from the American Stock Exchange (see related story, page 24) and has seen its stock slump over the past two years. High profile problems at ADT Security and other big firms have also helped investors to sour over the security market.

“Interest is coming into alarm monitoring because people perceive the valuations to be way down...and there is an opportunity to potentially develop a business plan that can work,” Mack said.

The company grew out of the business of King Central, which grew by about 190 dealers when it purchased the California central station and operations of International Dispatch Center, with whom the company would later merge and fold in its 80,000 accounts. As of November, 150 of those dealers from the California operation remained. In May 2000, King closed on its $10.7 million acquisition of Monital Signal Corp., adding 1,002 dealers, 109 of which have left. The newly combined company, known as King-Monital, picked up Custom Design Security of Sarasota, Fla. in October of 2001 for $1.2 million, which included about $1 million in dealer relationships.

The $5.1 million acquisition of RTC Alarm Monitoring in January 2002 initially added 270 dealers, but 33 dealers had moved elsewhere as of November 2002. Company officials said in the filing that dealer attrition is expected to be in the 10 percent to 15 percent range and is normally realized within nine to 12 months of closing.