Stanley to buy Sonitrol

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06/11/2008
Well, we told you they were back in acquisition mode. Stanley Works announced just now an agreement to acquire Sonitrol for $275 million, at the same time they announced an agreement to sell off CST/berger laser leveling and measuring business, based in West Lafayette, Indiana, to Robert Bosch Tool Corporation for $205 million. Busy, busy. Here's the official press release (it's long and dense): STANLEY WORKS ANNOUNCES SALE OF CST/BERGER FOR $205 MILLION AND ACQUISITION OF SONITROL CORPORATION  FOR $275 MILLION (sorry, many press releases shout and I was too lazy to retype it) Also Plans To Prune Several Small, Non-strategic Product Lines During The Remainder Of 2008 New Britain, CT, June 11, 2008: The Stanley Works (NYSE: SWK) today announced that it has entered into an agreement to sell its CST/berger laser leveling and measuring business, based in West Lafayette, IN, to Robert Bosch Tool Corporation for $205 million.  This operation had 2007 revenues of $80 million (excluding certain European sales of approximately $10 million), primarily in North American construction-related markets.  The transaction, which has been approved by the Boards of Directors of Stanley and Bosch, is subject to regulatory approvals and other customary conditions, and is expected to close during the next several months at which time the company expects to realize a pre-tax book gain totaling $138 million.  Net after-tax cash proceeds from the sale are expected to approximate $155 million. We've heard in the past Stanley is looking to get away from revenue stemming from product sales and emphasize recurring revenue. In a separate transaction, the company also announced that it has entered into an agreement to purchase 100% of the shares of Sonitrol Corporation from an ownership group comprised of Carlyle Venture Partners, Wachovia Capital Partners and Spire Capital Partners as well as selected members of Sonitrol management for $275 million cash (approximately 10x EBITDA). Sonitrol, headquartered in Berwyn, PA, provides security monitoring services, access control and fire detection systems to commercial customers in North America via two monitoring centers and a national multi-channel distribution network. Sonitrol, the 8th largest electronic security company in the U.S., brings a strong brand, unparalleled capabilities in audio-verified monitoring and a substantial national account base to Stanley’s Convergent Security Solutions platform.  Sonitrol, with revenue totaling approximately $110 million will report into Stanley’s Convergent Security Solutions business which had 2007 revenues approaching $600 million.  The Boards of Directors of Stanley and Sonitrol have approved the transaction, which is subject to regulatory approvals and other customary conditions. The acquisition is expected to close during the third quarter of 2008. Have to admit I just read that Sonitrol was for sale on Jeff Kessler's blog, which is now a must-read, considering his in-depth knowledge of the industry and now being released from Lehman Brothers' lawyers' shackles. However, you'll notice I had this here news posted first... John F. Lundgren, Chairman and Chief Executive Officer, commented: “These two transactions are important steps toward advancing our growth strategy and repositioning the company to be less dependent on construction and DIY markets.  We continue to be strongly committed to shifting the company’s portfolio into higher-growth, higher-return areas such as electronic security.  The addition of Sonitrol, with its iconic brand and strong franchisee and direct sales network, expands the scale of our existing North American monitoring operation, increases our recurring revenue and adds breadth and depth to our electronic security product offering.” Exit of Several Small, Non-Strategic Product Lines In addition to the two transactions announced today, the company is developing plans to exit several small, non-strategic product lines during the remainder of the year with associated revenues of approximately $60 million. Assuming that these exits are accomplished through discontinuation or sale at various times throughout the year, their results will be reclassified to discontinued operations for the current and all prior periods in accordance with generally accepted accounting principles as events transpire.  Details of these exits will be communicated as necessary after plans are finalized and/or transactions occur. ...boring stuff... John F. Lundgren, Chairman and Chief Executive Officer, continued: “The portfolio transformation which we embarked upon several years ago is a key element of our overall strategy and includes both acquisitions and the occasional disposition of businesses or product lines that are inconsistent with our intended direction.  As the portfolio reshaping has progressed, the company has become stronger and more capable of delivering sustainable earnings and cash flow growth.  Today’s announcement reinforces our firm conviction to continue with this strategy.  Challenging economic periods like these often present opportunities.  Our acquisition pipeline is robust and our ability to create value by allocating capital to acquisitive growth and/or share repurchase is strong.  We continue to operate the company within the boundaries of our upper-tier credit ratings, a strategy which has served us well over the years and will continue to do so. “ Additional Information About Sonitrol Sonitrol, a market leading independent U.S. commercial security company, had 2007 revenues of approximately $110 million.  Sonitrol is well positioned for growth given its integrated suite of security solutions, its established brand and respected reputation and its national multi-channel distribution network.  Sonitrol, an industry leader in apprehension rates, maintains one of the lowest false dispatch rates in the market, and is a leader in verified audio monitoring services. Recurring monthly revenues (“RMR”) from commercial monitoring activities represents an important element of Sonitrol’s annual revenues; additional revenues are generated from security system and equipment installation, repair services, proprietary equipment sales and royalty fees generated from Sonitrol’s franchisees. A one-time installation fee (including the cost of equipment) is billed at the commencement of customer security contracts. Additionally, monthly monitoring fees are charged over the life of contracts, for which a typical initial length is five years, and service fees are generated from repairs that are not covered by warranty. Yeah, I think Sonitrol does pretty well and did pretty well for its investors. Getting $275 million for $110 million in annual revenue isn't that far away from Stanley paying $545 million for the $200 million HSM brought (both deals are in the 2.5-2.75x annual revenue, 10-12xEBITDA, 50-60x RMR areas, with Sonitrol a touch lower than HSM in all of those categories). I'm guessing Sonitrol are similarly doing about 50 percent of their revenue in recurring and that their gross margin is somewhere around 30 percent, maybe higher. I'll get some more on what's happening with the brand, whether HSM is going to keep the residential accounts, and what's up with the franchises soon. I'm going on a little vacation starting tomorrow, though, so it might take a bit.