CRITICOM navigates new program for dealers

Thursday, June 1, 2006

DALLAS--Criticom International, a solutions provider for independent alarm dealers, unveiled a marketing campaign in April that combines the strengths of Criticom and acquired companies NACC and FSS into a single sales organization to facilitate growth for dealers and Criticom's three monitoring centers. The campaign, focusing on three product verticals--monitoring, dealer services and acquisitions--includes the announcement of a high-multiple financing program that is "designed for a dealer that has predictable volumes, proven track records, and who needs equity in the business," said executive vice president Mike Fields.
Currently, Criticom provides financing in the form of term loans and lines of credit up to a multiple of 27X recurring monthly revenue. Under this program, it would provide additional financing up to 30X RMR for certain qualified dealers.
Understanding each dealer's unique circumstances motivated this new financing program.
"We recognize that all dealers are not cut from the same mold. We deal with traditional companies that may not ever need financing because they sell high margin projects that don't require the need to tap into capital," Fields said.
Michael Barnes, a partner in Barnes Associates, an investment banking and consulting firm that specializes in the security alarm industry, said Criticom is in a unique position to assess the value of a dealer's accounts as collateral, and to gain control if necessary.
"Combined with their position as a supplier of a 'mission critical' service, Criticom should be able to intelligently lend to their customers," Barnes said. "The issue is, and always has been, can Criticom work with their customers, many of whom are smaller dealers with little experience in financial forecasting and planning, to determine the proper limits to their borrowing."
With the acquisition of FSS, Barnes believes the company now has that critical capability.
One dealer already closed on the program in April. Fields said there are a few pending transactions in the process, however, and "each has different characteristics depending on what the objective is."
Fields anticipates that the high multiple program will be used when the borrower contracts monitoring services through Criticom.
"If you take a look at who we are as an organization, first and foremost we are a wholesale monitoring company. Wholesale monitoring is the engine that pulls the train," Fields added.
He also said one key to the program will be to "have a mechanism to mitigate our risk, so we will not dilute the dealer's ownership of the business, which they have worked so hard on."
If the program is "underwritten intelligently and structured that both the lender and borrower are knowledgeable partners in the arrangement, lending at these levels can make sense," Barnes said, adding Criticom, given their position and capabilities, should be able to work with their dealers and determine if and when this might be appropriate.
In December 2005, the company held a national sales meeting. Fields looked around the room and saw representatives from each department. "I thought we have got people in this room who are loan, acquisition and monitoring experts. In the past there was not a lot of crossover between the three disciplines," he said. "If you look at the dealer community they need all these services." So Criticom's program, "Navigate your way, chart your course," which is available to its more than 725,000 accounts, made sense.
"We leverage on our ability to raise capital by providing that to the dealer in an efficient manner," Fields said. "They can in turn use those funds to grow their business. There is nothing more satisfying than to see our dealers generate success which becomes our shared success."