John Cannon: investor turned insider

HONOLULU—In the past year, John Cannon has journeyed in a sense from Wall Street to Main Street. He's gone from investing in security companies to owning and running one.

The tropical locale of his company, Alert Alarm, sweetening the deal in some obvious ways, Cannon said he's found the transition both challenging and fulfilling.

“The reality is that when you move from the investment side to the operational side, there are more emotional ups and downs every day,” he said. “As an investor you may be focused on broad, gross numbers monitored on a periodic basis: If you add x number of customers and lose y number of customers and that trend is increasingly positive each period, that's good ... you don't look at the 150 cancellations and the unique circumstanced involved.”

Cannon spent the last 10 years as an active investor in the security space. He worked for Goldman Sachs, Waud Capital (and early backer of ASG), American Capital Strategies and most recently for a Greenwich, Conn.-based hedge fund called Silver Point Capital. “I've looked closely at 40 to 50 different businesses in the security industry in the space of a 10-year period,” he said.

Cannon got to know former Alert Alarm owner Bob Bean through industry connections. Bean still serves as CEO and is an investor in the company. To buy the company, Cannon “raised the debt and equity capital on my own, did the deal with Bob selling the company to me. It was important to him that he sell the company to an individual he could transition the company to instead of a fund.”

Cannon formed Spring Rock Capital and is its general partner. The fund has 12 limited partners, and is the investment vehicle used to buy Alert. He acquired Alert in January 2009, but stayed on the mainland until last August when he and his wife and three small children moved to Hawaii and he officially took over as president of Alert Alarm.

The partners involved in Spring Rock include a mix of people Cannon has worked with in the past and people he knows professionally. “Seven of the twelve limited partners have touched this transaction in one form or another,” he said. He's tapped partners for both daily involvement (one partner served as interim CFO) and board-level expertise. His five-person advisory board includes himself, Bean and “three limited partners that are successful executives with significant operating experience in their respective industries.”

“I look at it as duplicative mentorship,” Cannon said. “I have a mentor in Bob who has 50 years in this marketplace and who built this company over 30 years as well as  mentorship in the advisory board who've invested in this endeavor and who bring unique, high-caliber perspectives.”

While the new job requires many new skills, Cannon said his analytical skills in measuring performance, honed in the investment world, come in handy. Cannon said he's from the mindset that “that which gets measured gets managed and that which doesn't get measured doesn't get managed.”

Cannon is building processes and reporting around different departments to help with day-to-day management of operations. And while he's been in place for less than a year, Cannon has “completed three small acquisitions—all within our market, small account purchases.”

When he was growing up, Cannon's father left a banking job to become an entrepreneur. Cannon said his father found satisfaction in the connections he developed running a small printing company for 20 years, and he's finding the same sort of satisfaction.

“It can be fun and exciting to spend your days working with CEOs, CFOs and COOs, but at the same time you lack the connection to the people who make up the core of the culture. That's something that I'm enjoying about Alert Alarm and the 100 employees we have here in Hawaii.”

It's obvious that Cannon is enjoying Main Street, and he may be far away from Wall Street, but investing is not something's he's left behind. 

“We do have interest in additional investments,” he said. He'd consider buying within Alert Alarm's market in Hawaii and elsewhere. “If it's a remote market that doesn't fit within Alert Alarm's long-range acquisition plan, we'd look at doing it as a separate investment,” he said. How would he work that?

“I would continue to run Alert Alarm and we'd run the second investment as a traditional private equity type purchase through Spring Rock Capital, complete with a separate management team either from that company or recruited from the industry.”

OK, so what would be an attractive separate investment? “It all depends,” Cannon said, “a more traditional business in that it's something with a decent enough size to be a platform investment. We'd look at something in the $250,000 to $350,000-RMR range and up from there. While we wouldn't buy on one of the very large companies in the industry, we'd want it to be large enough to support growth.” Perhaps more important, he said, would be where an owner is looking for the “some of the benefits of a strategic sale—operating experience and industry perspectiveas well as some of the positives of a financial sale, like the ability to stay involved both operationally and economically.”