Rentokil-Initial mulls sell-off of security

Strategic review, to be completed in February, could result in $500 million sale of significant international integrator
Monday, January 1, 2007

LONDON--Rentokil Initial, a worldwide corporation employing 70,000, announced last week it is commencing a strategic review of its electronic security business, which brought in more than $500 million in revenues last year. In a conference call with investors held November 30, Rentokil chief executive officer Doug Flynn said that the division "is well managed and has performed strongly," to the tune of $70 million in profit in 2006 with 7.8 percent revenue growth. However, he said, "over the last 12 to 18 months, we have actively been pursuing medium- and large-scale opportunities to acquire in order to transform this operation. To date this has not been possible, to find the right deal that makes sense for our shareholders." Thus, in a market "about moving up or out ... the time is right to initiate the review process ... We don't feel that standing still is an option."
If substantial growth doesn't seem possible, the review process, to be conducted by UK firm Greenhill, may find that the division "may--may--offer greater strategic value to another business which can take it forward into its next stage of development."
Currently, Rentokil Initial's electronic security division operates at Initial Electronics in the United States, Initial Electronic Security Systems and Initial Fire and Security in the United Kingdom, Initial Varel Security in the Netherlands, and Initial Delta Security in France. The company sold off its man-guarding operations in Canada and the United States to Garda and Allied Barton, respectively, earlier this year, for a total of roughly $130 million.
Jack Mallon, managing director of investment bank Mallon and Associates, has followed Rentokil Initial's actions in the security industry since 1993, when Clive Thompson, then chief executive, decided to get into security and initiated a hostile takeover of man-guarding firm Securigaurd.
"It's a little sad," Mallon said, "to see the security piece just be raffled off and auctioned off, in that it had served Rentokil well over the years."
Mallon speculated, using a seven multiple of Rentokil's 2006 profits, the division's worth to be in the range of $500 million. As for potential buyers, Mallon mentioned Securitas Systems--"They have the size and maybe even the motivation to man an acquisition of this size"--along with Siemens and other major integrators like Ingersoll Rand, possibly even Diebold.
He did not think Brink's likely, with the company's traditional residential and North American focus, "but they're big enough."
Mallon also speculated that Tyco, though "they have not yet emerged from the post-Kozlowski era and demonstrated that they're ready to get back in the acquisition game ... there have been signs they're planning to do so, and this might be the opportunity."
When reached for comment, Greenhill's Edward Wakefield said via email, "it would probably be inappropriate for us to comment while Rentokil's strategic review is still ongoing."
Kevin Robison, president of Initial Electronics in the United States, said he was unable to comment, and referred inquiries to Greenhill, who are expected to return findings in February.