Investor firm tells IASG: Sell
ALBANY, N.Y.-- Worried about the steep decline in Integrated Alarm Services Group's stock price, its single largest investor suggested it is time for a sale in a letter filed with the U.S. Securities and Exchange Commission and the company's board of directors in November.
Contrarian Capital Management, which owns 13 percent of IASG, comprising about 3 million shares, addressed specifically the company's falling stock price.
After receiving the letter, signed by Jason Mudrick, IASG, a holding company for several businesses in the security industry, appointed an investment bank to help examine the company's options.
"The bank will assist the board of directors' committee in exploring strategic options that will enhance shareholder value," said Joseph Reinhart, who handles investor relations at IASG. Those strategies could include acquisitions, strategic joint ventures, recapitalizations, mergers, divestitures and share repurchases. However, Reinhart would not elaborate on strategies examined. "The board will evaluate and pursue what it believes is in the best interest for IASG and its shareholders," he said.
Jack Mallon, managing director of Mallon Associates, said this is "another alarm company that took on too much debt...with the heavy interest expenses, they have to find a way out. It's obvious [for the company] to sell."
IASG monitors 690,000 security systems and works with 5,500 independent dealers. The company's stock price took a 78-percent drop over a two-year period, from $9.25 when it went public in July 2003 to $3.18 at the December 7, 2005, market close. In November, 2004, IASG completed its largest deal to date, acquiring National Alarm Computer Center from Tyco International for $50 million. The transaction brought 240,000 subscribers into the fold as well as a central station, loan portfolio and alarm contracts. In October 2005, the company added the operating assets of Financial Security Services and its $17 million loan portfolio and specialty lending business for $23 million.
Contrarian's letter details IASG's spiked attrition rate. The company targeted an 11-percent attrition rate for last year, but it climbed from 10.9 percent in the first quarter to 17.8 percent by the end of the third quarter in September. The company said loss of residential customers due to customer service issues provoked by personnel turnover in its customer retention call center was the culprit.
An analyst following the company, Michael Hoffman of Friedman, Billings, Ramsey, said in a report the company may explore the sale of its commercial business, where purchase multiples are 40-50 times recurring monthly revenue.
IASG's situation, "is not a plus for a pure play alarm company," Mallon said, but, worse, "The company's highly visible problems do not enhance the overall image of the industry as an investment vehicle."