Tri-State gets cash infusion fromVC firms

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Friday, March 1, 2002

UPPER DARBY, Penn.-Two venture capital firms have bought a majority interest in Tri-State Alarm, giving the company the cash infusion needed to grow to 45,000 customers and six new locations over the next 18 months.

The firms, Hunt Capital Growth Fund and Merchants Capital Corp., bought a 54 percent combined stake in the alarm business, which has since become a limited liability company. The amount the two venture capital firms paid for a percentage of Tri-State was not released.

"The benefits are a strong big brother," said Ken Gross, president of Tri-State, a company with $520,000 in recurring monthly revenue. "They gave us a big shot in the arm that we needed with financing and cash."

That cash infusion will help Tri-State open six new offices over the next 18 months to give the company a total of 13 locations. The first new branch was planned for either Allentown or Reading, Penn. in February. Other planned locations include Pottstown, Penn., Atlantic City and Deptford, N.J., and Wilmington, Del.

"That's going to give us a lot of growth," said Gross, who retained the remaining interest in Tri-State with select employees. "That's going to take our present volume from 600 units a month to 1,000, and that's our goal."

Overall, both firms are anticipating Tri-State will triple in size. To help the company achieve this goal, they will provide Tri-State with support on its board of directors and on a consulting basis.

Hunt Capital is not a stranger to the security industry. The company owned a stake in Security Technologies Group, one of the largest systems integrators until it sold to Siemens Building Technology last summer.

"Ken's a proven guy and we feel that the alarm industry is at the bottom of its cycle and will come back up over the next few years and it's a good time to buy," said Peter Stein, of Hunt Capital in Dallas.

Merchants Capital, a newcomer to the security industry, decided to invest in Tri-State for similar reasons.

"We're very bullish on the alarm monitoring business and have looked at the industry for a number of years and we're delighted to have an opportunity to invest in Ken Gross' business," said Gordon Cohen, a co-managing partner with Merchants in New York.

For Gross, the benefit of the deal was also being able to stay in the security business, compared with having to stay out of the business for 10 years when he sold his alarm company to SecurityLink in 1989. He intends to stay on as president of Tri-State for the next three years.

"Rather than selling, this was a better option for me to keep the company going," said Gross.

But in three to five years, the investors in Tri-State expect to see a return.

"A three to five year period is the time horizon where we look for a realization on our investment," said Stein. "In all likelihood it's going to be sold."