Trio of alarm firms for sale

Honeywell announces plans to sell U.S. alarm monitoring business
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Thursday, May 1, 2003

MINNEAPOLIS - Honeywell recently joined the ranks of two other well-known alarm companies, Monitronics and Protection One, by announcing plans to sell its alarm business.

The trio is considered three of the five largest U.S. alarm companies, leaving the security industry and analysts wondering who is in the financial position to buy these businesses.

“We’re going to see more of the private equity players with the shrinking of the strategic buyers,” such as Tyco, said Jack Mallon, a security industry analyst and managing director of Mallon Capital.

While these new private equity players will not visibly change the landscape of the security market to consumers and end-users, Mallon expects an uptick in the M & A activity of the market.

For Honeywell, the March announcement is part of the company’s plans to focus on the high-end commercial systems market by shedding what it calls its U.S. alarm monitoring business. Not only does that division install residential systems, but also small-scale commercial systems.

The announcement comes more than two years after Honeywell first said it would sell its U.S. security monitoring business, but then took it off the block.

At that time, the U.S. security monitoring business employed 1,400 people who worked in 62 locations, according to a story that appeared in Security Systems News in September 2000. Today, company officials say the business unit operates out of 40 branches, employs 850 people and serves 140,000 customers.

Craig Leiser, president of consulting firm The Kismet Group, said by making this decision, “Honeywell is capitalizing on its strength.” He expects the company will be able to go head-to-head with the likes of Siemens and Diebold and tap into technology available from Honeywell.

It remains unclear why Monitronics is up for sale. Calls to officials at the Dallas-based company and to the private equity firm Abry Partner, which reportedly controls the company, were not returned by press time.

But public news about Monitronics’ sale status comes several years after analysts first began speculating the business was on the market. “There are a number of private equity firms that are looking at Monitronics,” said Mallon.

Contrary to published reports, Warburg Pincus has not studied buying Monitronics, said Oliver Goldstein, vice president of Warburg Pincus. “We are interested in the security market,” said Goldstein, whose company invested in former Protection One executive Tom Rankin’s firm Alliant Protection last year. “And we’re certainly evaluating the industry for other opportunities.”

With an estimated 375,000 accounts, Monitronics is one of the largest companies in the market today. It has built its base through a renowned dealer program, offering contract monitoring services and acquiring the likes of DMAC, a now defunct finance company that sold Monitronics 64,000 accounts in 1999.

Protection One’s sale comes as its parent company Westar Energy looks to exit the alarm business and other non-utility operations. The company has now been on the market for a couple of months with Westar using Lehman Bros. to broker the deal.

But with so many alarm companies now in the market, the question is how long will it be before any of these deals close?

“The old days of Tyco coming in and swooping up the alarm company are behind us,” said Mallon. “One of the characteristics of the private equity model is extensive due diligence. Their deals take longer and are very agonizing.”