HSM hot topic at Barnes Buchanan

Thursday, February 15, 2007

PALM BEACH, Fla.--Drawn by 73-degree temperatures and the opportunity to schmooze with other security company executives, entrepreneurs and investors, more than 200 people gathered here Feb. 8 and 9 for the 11th annual Barnes Buchanan Conference.
One topic that came up in many iterations over the two-day conference: What does the sale of HSM to Stanley Works (for $545 million, representing a 60 multiple of RMR) mean to me as a security company, integrator or investor?
Jim Covert, former owner of HSM, sought to answer that question in a post-mortem on the sale. After dispelling two rumors (one, that he's in his 60s, and, two, that he's retiring to New Zealand. "I have a three-year non-compete, and then we'll see what happens," he said), Covert talked about the 31-month process of readying HSM for sale. The company, he said, was better than anyone thought it was, with "employees that were better than the performance of the company suggested" while it was part of Honeywell and had a "ton of customers." Covert credited HSM's success to a new management team; a brand-new IT system (to which Stanley Works's security arm will be converting); significant investment by GTRC, Merrill Lynch, LaSalle Bank and others; transparent reporting of the progress they were making; and Les Gold, who introduced Covert to Stanley.
He called the sale "a great play" for the industry and particularly important for large established, security companies. This sale showed that an entity like HSM could "survive and be fixed and move on and be better than it was before," Covert said.
An important point, he said, was that HSM "made money on every dollar of RMR we created," a concept he feels the security industry as a whole needs to embrace.
The conference included a full slate of speakers and panels including Michael Barnes' annual industry and market overview, on Feb. 9, where he said the "fundamental growth drivers remain strong." Specifically, he cited the increasing quality of alarm products and the fact that the insurance industry and regulators support their use in a market where penetration rates remain low. Also, he feels underlying technologies are improving and becoming more affordable, while new technologies such as biometrics are broadening the market. Finally, there is the increased business sophistication within the industry and the increasing interest in the industry on the part of the capital markets.
"The average security executive is infinitely more sophisticated [and] better capitalized" than they were five years ago, Barnes said.