Magellan hopes to guide integrators to profitability

Monday, December 1, 2008

EVANSVILLE, Ind.--Rick Deer is an electrical engineer who used to own a Napa Auto Parts store. “I saw a consistent problem with the small companies who were my customers,” he said. “They were great technicians, but not the greatest businesspeople, nor did they want to become great businesspeople. And they were always undercapitalized.”

Deer got into the electrical distribution business and saw the same pattern repeat itself: “A light bulb went off,” he said. “These people are committed and capable, but they’re missing a few business elements. Now our business environment has become more adversarial and I see them beginning to falter.”

With a nudge into security and some help from his MBA son Donald, Deer has now launched Magellan Integration, a holding company that looks to acquire or partner with independent security integration firms, providing them with back office support, and engineering and R&D resources, while allowing them to continue to run and grow their businesses.

In the past year, Deer has signed on InTeleSec, ISS Integration, JDL Security Systems, Trinity Integration and Texas Integral Security Systems. Deer said the goal for 2009 is to add a minimum of five more firms, and he’d like to add 20.

“Primarily,” he said, “we attempt to recruit by cashing [the company owners] out of their position. When we do that, we offer up a piece of the new business unit. We form a new entity, but attempt to keep the same name so that they can keep that market brand ... One of the key elements from a financial perspective is that we can help these folks, who are either sole proprietors or Sub S companies put more money in their pockets going forward.”
However, he emphasized, the goal is always to keep the owner in place running the company. “We want to team up with skillful people,” Deer said, “and the financial perspective is that we all come out ahead.”

He called his model something of a hybrid between the traditional dealer and franchise relationships that currently exist in the industry. “We give them viable back-office and administrative procedures that decrease the cost of operation, and decrease the opportunity cost,” he said, “but hybrid that with the building of the team and the growth of human capital. I don’t see that in the dealer or franchise model currently.”