Integrator adds fire, corrections capabilities with $14m in buys

Thursday, January 10, 2008

SAN ANTONIO—Argyle Security, an international integrator working in the corrections and commercial markets, has announced the acquisition of three companies for a total of $14 million. Argyle’s principal subsidiary, ISI Security Group, the acquisition of which turned Argyle from a holding company into a going operation in 2007, will operate both Peterson Detention, which manufactures windows and furniture for detention facilities, and FireQuest, which installs and services commercial fire alarm and suppression products.
The third company, Com-Tec Security, will merge with Argyle in a deal that was expected to close after Security Systems News went to press. Com-Tec designs and manufacturers electronic security and communications systems throughout the United States, and has a significant presence in the corrections vertical.
Bob Marbut, co-chief executive officer at Argyle, said increasing service revenues is a major goal for the company and Com-Tec will help do that in the corrections business, where Argyle has little recurring revenue through its MCS-Detention division. “We’ll pick up what Com-Tec has,” he said, “and we’re dedicated to pushing that. On the commercial side, though, it’s already above 30 percent, and it’s the fastest growing revenue segment in our company, that commercial service revenue. We’re very much interested in wanting to continue that trend, and frankly conceptually, we don’t have a ceiling there.”
The three acquisitions led Argyle to revise its revenue projections for 2008 upward from between $105 and $115 million to between $128 and $142 million, including an additional $1.5 million in RMR from Com-Tec alone.
“We think these are good transactions from our shareholders’ point of view for sure,” said Marbut, “but there are also synergies there that make this work well ... This is not a portfolio approach, it’s moving toward a goal of an well integrated company.”
Peterson brings a management team that’s well known to ISI head Sam Youngblood, for instance, as ISI has been a customer of Peterson’s for years. “Having them come on board as we’re growing as rapidly as we are is going to help us tremendously as we enter the California market,” Marbut said. Com-Tec has been a competitor of MCS-Detention for years, said Youngblood, and “they are very similar in their model in that they go after customers on a negotiated design basis, then furnish their own equipment.” Because the companies work so similarly, ISI will be able supply Com-Tec with a way to automate some of its programming, leading to quadrupled productivity, and Com-Tec will be able to supply ISI with circuitry “that will give us an immediate reduction in cost of sales.”
“So, between these two technologies,” Youngblood said, “both companies can see a dramatic increase in our earnings.”
In the near term, all three companies will keep their brands and staffing. “We’re trying to create a stew here,” Marbut said, “not a clear soup. We want to keep the identities of the critical parts that make it all work.