Honeywell deal: Will we see a quick return on investment?

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Tuesday, June 1, 2004

CHICAGO - When GTCR Golder Rauner came onto the security scene three years ago to finance James Covert’s new security business, few in the industry predicted the quick turnaround of that business or the $1 billion price tag that it fetched.

In a matter of months, GTCR and Covert took the SecurityLink alarm business and several other companies it bought and sold to Tyco International for five times the original purchase price.

The quick turnaround, and return on investment, surprised many in the security industry. But this time around, security industry analysts say GTCR’s acquisition of Honeywell’s alarm business could be part of a long-term strategy.

“I don’t think they did that deal with SecurityLink and Covert with the idea that it would flip six-months later,” said John Mack, president of USBX Advisory Services.

Venture capital firms typically embark on an exit strategy within three to five years of an investment, but this transaction could prove different, said Mack. While the company could look to sell the business, he said, “there’s a good opportunity to take it public.”

Collin Roche, senior principal for GTCR, said the venture capital firm plans to grow the security business. He said no formal budget has been set, but the company plans to pump its financial resources into the business and leverage its own portfolio.

“We have the benefit of managing $6 billion, so we’ll take advantage of the opportunities that are in front of us,” he said. “We love this industry, we love this as a platform to continue to grow.”