Protect America cracks code on DIY, gets $125M loan

Thursday, January 14, 2010

ROUND ROCK, Texas—Can average homeowners install their own alarm systems? Residential alarm company Protect America has 80,000 customers who’ve done just that, and on Jan. 8 the company announced a $125M credit facility and a new strategic partner in the business.

“Many have tried, but Protect Amercia has cracked the code in a material way in the DIY market,” said Bill Polk, managing director for CapitalSource, the lead agent on the deal.

CapitalSource provided $50 million of the total senior loan commitments. The deal also involves an acquisition transaction sponsored by Rockbridge Growth Equity and Falcon Investments. Thad Paschall will remain as CEO and will continue as substantial owner of the business with Rockbridge and Falcon. Protect America, which has a total of 118,000 accounts, will use the funding to refinance existing debt and for organic growth.

So, how has Protect America been successful in the DIY market? Paschall said the bottom line is that “anyone can install an alarm system.” While 80 to 90 percent of his customers are initially reluctant to self-install, 95 percent of his customers today self-install their own systems, which are standard GE Security Simon systems.

And his customers aren’t all tech-savvy types. “We’ve had elderly people do it, young people, all kinds of people,” he said.

The key, he said, is the process Protect America has developed over the past few years, where his sales and installation people walk customers through the installation and provide support after the installation: “If you can plug in an answering machine or talk on the phone you can do it, we’ve made it that simple.”

Paschall has been in the alarm business since 1989 and Protect America has been around since 1992. It used to have 20 to 25 offices around the country. It now has one office here in Texas. Finding and training technicians was always a challenge, Paschall said. With the self-install business, which he started experimenting with in 2002, he “basically took the installation staff out of the field and brought them inside.”

Paschall had high praise for Rockbridge and partner Kevin Prokop, whom he said approached him about a possible partnership. Rockbridge is affiliated with Quicken Loans, the largest Internet-originated mortgage business. As part of the deal, Quicken will begin cross-marketing home security systems to its customers, said Prokop.

Quicken agents will be speaking to new or existing homeowners who are interested in home mortgage, Prokop said, “and asking them if they’re interested in a special offer on a home security system. It’s a similar clientele, people with a good credit profile, Internet savvy and technically proficient.”

Will we begin to see more traditional alarm companies moving to a self-install model? “I think it’s more the purview of a sophisticated marketing and sales organization,” said John Mack of Imperial Capital, which acted as a financial advisor to Protect America. “It looks easy,” he said, but it’s taken Protect America years to refine the process to successfully generate long-term sales.

Still, “it’s something everyone should be paying close attention to,” said CapitalSource’s Polk.

Bank of America, Merrill Lynch, Goldman Sachs, and Rooney Associates also participated in the deal.