GVI Security to be bought by private equity firm

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Thursday, October 22, 2009

CARROLLTON, Texas—GVI Security Solutions, a provider of video surveillance solutions featuring the Samsung Electronics line of products, has entered into a definitive agreement to be acquired and taken private by investment funds managed by GenNx360 Capital Partners, a global private equity firm focusing on middle market opportunities and featuring former GE board member Lloyd Trotter.

Of primary importance in the deal is taking GVI from a public company to a private company. While three years ago, when CEO Steve Walin and CFO Joe Restivo came to GVI, it was advantageous to be public, for reasons of capital-raising flexibility, Walin said economic times have really changed the dynamic.

As a public company, with roughly $50 million in revenue, trading on the bulletin board, “it’s fairly difficult to attract investment from the market,” Walin said, “especially in light of the fact that the former blue chips are trading at such low levels.” GE was at $40 a share two years ago, now it’s hovering around $15 a share, he noted. There’s much less reason for an investor to look at a company like GVI trading at around $1 a share.

“Eighteen months ago,” said Walin, “when the markets melted down, bank stocks went from 50 dollars to two dollars ... the world has changed for public companies.” Further, it was costing roughly $1 million a year to comply with regulations tied to being a public company.

“Now,” he said, “we have a group of investors who not only have capital at their disposal to help us grow, but they have a lot of expertise and contacts, too.” He noted that Lloyd Trotter was the executive at GE Security who acquired Interlogix. With that capital, “we can now invest in more pre-sales support and sales and technical training than we could before,” Walin said. “When you’re dealing with a strong supplier, you as a customer benefit from that.”

Doesn’t a private equity partner indicate there will be an eventual sale of GVI and exit for the investors, though? Walin said that’s possible, but that he and Restivo had signed four-year employment agreements, and because the company has been cash-flow positive for 10 straight quarters, “it could be continued to be held privately for cash flow generation.”

GenNx360 was in the middle of a tender offer, as Security Systems News went to press, to purchase for cash all of the outstanding shares of GVI common stock at a price of $0.38 per share, for a total equity value of approximately $11.6 million. Following completion of the tender offer, the parties will complete a second-step merger in which any remaining shares of GVI common stock will be converted into the right to receive the same price per share paid in the tender offer.

Walin said Samsung are still on board with GVI and are excited about the move. Then again, “we were losing a million in a month, and not paying bills to Samsung, so if they didn’t dump GVI then, they’re not going to do it now,” said Walin. “We have a strong partner there.”