IR to shed security business

McManus: If well capitalized, spinoff could benefit security integrators
 - 
Wednesday, December 12, 2012

SWORDS, Ireland—Depending on how the new business is structured, conglomerate Ingersoll Rand’s decision to spin off its security products business could benefit integrators, Michael McManus, Imperial Capital managing director, told Security Systems News.

“From an operating company point of view, it will be interesting to see what kind of capitalization the parent company will spin off [the new stand-alone security company] with,” McManus said.

The new entity’s capital structure will determine its ability to make acquisitions and grow, he explained.

Ingersoll Rand will announce those details—as well as the name of the new entity and its leadership team—“prior to the spinoff,” which is expected to take place within 12 months, said Misty Zelent, IR spokeswoman.

Ingersoll Rand on Dec. 10 announced that its board of directors unanimously approved a tax-free spinoff to shareholders of its commercial and residential security businesses. The new combined business is expected to have revenues of $2 billion. It will include the well-known Schlage brand of locks and other access control products. Other brands in its portfolio include LCN, Von Duprin, Interflex, CISA, Briton, Bricard, BOCOM Systems, Dexter, Kryptonite, Falcon and Fusion Hardware Group.

The move follows reports that activist shareholder Nelson Peltz, whose Trian Fund Management reportedly owns 7.3 percent of IR stock, was pressuring IR to divest its security business.

Last December, IR sold its integration business to Kratos

Noting that ASSA ABLOY and IR are “really the dominant players in the locking market,” McManus said that as a pure-play security company the opportunity exists for the new entity to be “more focused, more nimble, more responsive and closer to the channel.”

IR’s Zelent said the new security company will be able to “invest in further innovations [and] programs that will benefit the integrators as the security market transitions from mechanical to electro-mechanical security products.”

She said that “synergies in sourcing, technology and assembly operations [will give the company] financial flexibility to develop … electronic locking platforms, cards, readers and credential services that reduce cost and increase speed to market, as well as automate the specification process to reduce order-to-delivery cycle time.”

After the spinoff, IR will be a $12 billion company. IR Chairman and CEO Michael Lamach said in a prepared statement about the new security company that “both companies will be able to allocate capital and deploy resources in a more focused way.” He also said the new security company will be positioned to “build scale and make necessary investments for the future.”

IR also announced a $2 billion share repurchase program that will begin in 2013 and be completed in Q1 of 2014, and a 31 percent increase in its quarterly dividend.

IR purchased Schlage, Von Duprin and LCN in 1974. It has acquired a number of other brands since that time and has had a stand-alone security business segment since the late 1990s, Zelent said. 

Comments

Cannot put my arms around the talking points coming from IR's Davidson, NC headquarters. It is a fact that IR did sell its integration business to Kratos, for this was a counter-productive acquisition placing a manufacturer in direct competition with its product dealer base. However, one cannot understand why Nelson Peltz would place pressure on the board of directors to divest the security sector, a sector that would normally contribute a very healthy gross margin to corporate. If the talking points really mean that as a stand alone organization, the security organization would be able to acquire organizations and commence a needed product development process without IR's stringent rules and regulations, then one would solidly agree with the planned move and IR should plainly articulate its reasoning.