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by: Martha Entwistle - Wednesday, July 29, 2015

Like others here at Security Systems News and across the industry, I was saddened to learn of Frank De Fina's death.

Over the past 10 years I got to know Frank and I admired him a lot. He was a great businessman who knew his technology and the security industry inside and out, but one of the reasons I liked talking to him is because he knew as much about music and art as he did about IP video.

And more than just talk about music, he was a musician. If you've been to PSA-TEC, you've probably enjoyed watching Frank play guitar at Bill Bozeman's annual PSA Jam. Here's a link to a 2010 performance.  And here is a photo of Frank playing at the House of Blues in Chicago at ASIS a couple of years ago.

Frank was a security veteran—he spent more than 30 years in security—but he was not one to pine for the good old days of the security industry.

He welcomed a challenge and he was forward-thinking.

Recognizing that the security industry is too gray, too male and too white, he worked to prepare the security industry for a financially healthy and vibrant future in many ways.

He was a mentor to many, he was active in security industry associations, and he was the driver behind a security college degree program at Mercer County Community College, which will launch in September.  De Fina worked with the Security Industry Association, Northland Control's Pierre Trapanese and System Sensor's Dave Lyons on the idea. The two-year program  will combine security-specific training, liberal arts and business classes and will lead to an associate's degree in applied sciences. 

As the industry “aggressively moves into IP, these new [degree-holding] professionals will be well equipped to fill upcoming positions,” De Fina told me in an interview. He was excited that the new degree program will expose young professionals to the security industry, an industry that most college students do not know about. Noting the "tremendous lack of diversity in the security industry," De Fina said one of the reason organizers chose Mercer County Community College for this program is because it “draws a higher-than-normal percentage of African Americans, Hispanics and women."

Frank did great things at Panasonic and Samsung and he was poised to do the same at Hikvision, but he leaves a legacy that goes way beyond impressive profits and sales goals achieved. As SIA CEO Don Erickson pointed out "he put forth ideas and proposals that would strengthen the industry rather than any one single company." 

And I think he had fun doing it. Frank De Fina was a multi-talented guy who was one of the most well-liked and respected people in our industry. He will be missed.

 

 

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by: Martha Entwistle - Wednesday, July 22, 2015

In the course of putting together the educational program for our new Cloud+ conference, I've been talking cloud almost every day and last week I met a new cloud provider called BluB0X.

The company is new, but the folks behind BluB0X have been doing cloud for a long time--the executives and some of the team are the people who founded TouchCom. Remember Touchcom? It was acquired by G4S in 2008. Here's a story about that deal.

I had a great conversation with BluB0X CEO Patrick Barry and COO Patrick de Cavaignac of BluB0X yesterday.

Barry told me the principals of BluB0X "took everything we learned in the 15 years building the previous [Touchcom] product and applied modern requirements and modern technology."  A significant difference is that Touchcom sold direct to end users whereas BluB0X is working with the channel. Another difference is that BluB0X focuses soley on security. "There is no facility management [component], BluB0X focuses on access control, alarm management, video, biometrics and visitor management," Barry said. 

De Cavaignac added that BluB0X also does elevator systems integrating into the destination control systems.

Barry said security has gone through three technology cycles--we're now now at the fourth technology cycle, he said

This fourth cycle, what BluB0X calls "Security 4.0," is the foundation of BluB0X's manufacturing philosophy. Barry said Security 4.0 comprises six technologies that are changing the security industry and which BluB0X is built around. They are: cloud/wireless; mobile devices; multi-factor biometrics; everything unified on a Mercury platform (the largest installed platform, Barry noted); open, standard, IP-based; and lots of analytics.

BluB0X is ramping up quickly, Barry said. It has several new customers. The company exhibited at ISC West and will be at ASIS in September. The company recently hired Siemens' veteran Perry Levine to do business development.

Want to demo the product? Barry said it's very easy to do. Because it's in the cloud, BluB0X provides a login and password "and they can use the demo site. ... They can try it before they buy it," Barry said.

It offers the standard cloud benefits of "one version, the current version that gets upgraded once a month, whereas the typical manufacturer upgrades once a year," Barry said.

Barry is also very excited about the product's ability to run on any mobile device. It's different, he said, because "it's readable whatever the dimension of the screen is ... you can run our software from a computer or when you're walking down the street with your smartphone." Many software programs work on mobile devices via apps, he said. That can be problematic because the interface looks different, there's a lot less power with the apps, and you have to keep updating the apps.

I will have more, later, in a story on BluB0X.

 

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by: Martha Entwistle - Wednesday, July 15, 2015

A news release come across my desk yesterday about Horsemen Partners, a new investment firm run by a couple guys who want to buy a security company as a platform for growth. Let’s just say I’ve seen this kind of news release before, but, this one caught my eye because of these guys’ background: They’re both business school grads and former Navy SEALs.

They’ve got backing to buy a security company, but my question was why security? Why do they want to get into this business?

I spoke to one of Horsemen Partners’ principals, Sam Alaimo. this morning. Alaimo said he and his partner, Mike Lahiff, could have invested in any number of industries, and they did take a close look at some health care-related businesses, but they settled on security for financial and personal reasons.

“We like the growth prospects, we like the [ongoing] evolution of the security industry and we like the people in the industry,” Aliamo told me.

Alaimo and Lahiff got to know security technology, specifically video monitoring and sensor technology, while serving as Navy SEALs in Afghanistan. Serving in a remote area, they saw the benefit of security technology in Afghanistan and were able to leverage these capabilities to safeguard Americans, locals, and other innocent people in the area.

“The technology has endless capacity if utilized correctly,” he said.

Horsemen Partners is looking to buy a platform for growth in the security industry. They will be active operators in the business, but they’re open to negotiation on several items such as whether the current owner retires completely or stays on in some capacity.

Geographic location is not important. Lahiff and Alaimo will relocate, “whether it’s Billlings, Montana or Austin, Texas,” Alaimo said. And, Horsemen is also not set on a certain type of security business. Alaimo said that eventually whatever business they buy will do alarm systems installations, alarm monitoring, some systems integration, sensor technology and video monitoring—but the business as it stands now “does not have to do it all, it could be any one of these,” Alaimo said.

What Alaimo and Lahiff are looking for is an independent, well-run business that has potential to keep growing. They want a company that’s been cash-flow positive for the past three years, with $5- to $30 million in revenue and some RMR.

“We’re not ADT rolling up a business, we’re two guys who want to buy a private business and take care of it. We’ll stick with the company’s core capabilities but also bring in more—some systems integration, DIY—depending on its capabilities, what is has now and also where the market heads,” Alaimo said.

Horsemen is backed by institutional and individual investors. such as: Anacapa Partners; Search Fund Partners; The Cambria Group Relay Investments; Rich Augustyn & Larry Dunn of NIP Group, a specialized business insurance and risk management intermediary; Tom Cassutt, managing partner of TD Investment Company and David Lazier, managing partner of TD Investment Company;  Doug Tudor
managing partner of Ravenscourt Partners;  Bob Oster a professional economist and banker and private investor; Tim Ludwig, a private investor; A.J. Wasserstein, CEO of Onesource Water; Matthew Burr, general partner at Matland Capital; and, Matt Estep managing partner and founder of Bosworth Capital Partners. The investment company's web site has more information.

 

by: Martha Entwistle - Wednesday, July 8, 2015

Let the integration begin.

With Apollo Affiliated Funds closing on both deals with Protection 1 and ASG, I checked in with Jamie Haenggi, Protection 1 CMO about what's next.

In an email interview, Haenggi complimented ASG CEO Joe Nuccio, saying he's "done a nice job building a company of passionate employees that care about the customer, which mirrors the Protection 1 culture." 
 
Haenggi said Protection 1 CEO Tim Whall is out "is out doing what he does—meeting with the employees of ASG, hosting town hall meetings and sharing insights as to how he looks at measuring the business, taking care of the customer and developing the employee.  The senior teams are working together over the next 30-60 days to devise a detailed integration plan.  As you can imagine bringing together two companies this size is no small undertaking and great care is given to ensure little to no disruption."

Indeed, this is a huge undertaking, but my guess is that Tim Whall and team are up to the challenge. If you look at where the two companies overlap geographically they'll have five or six markets where they'll have huge density on the residential side. I've talked to lots of observers, outside of the ASG and Protection 1, who believe that this will mean very nice efficiencies and margin improvement on the residential side. On the commercial side, ASG was focused on small- and medium business and national accounts. These assets should just accelerate what Whall's been working on for the past few years—becoming the largest independent full-service security company around.

 

by: Martha Entwistle - Wednesday, June 17, 2015

The red herring: Where is Alarm.com in the IPO process now? We got some new information about the Alarm.com IPO on Monday, June 15, when the interactive service provider filed its preliminary prospectus for its IPO. It will offer 7 million shares of Alarm.com for “between $13 and $15 per share,” according to the document. Assuming shares go for $14, Alarm.com will raise $98 million.

Monday’s announcement comes about three weeks after its May 22 IPO S-1 filing with the SEC, which was valued at $75 million. Here’s my report on that filing.

Why did the value of the IPO change in three weeks and what’s the prognosis here? To get up to speed on Alarm.com’s  IPO process and what to expect in coming weeks, I made a few calls to some friendly finance mavens for an IPO primer.

Below is what I learned.

The first step, which Alarm.com took on May 22, is the filing of its S-1 with the SEC. That’s the 250-page tome that commandeered my office printer for a while and is now sitting on a shelf in my office. As part of the filing, Alarm.com has to provide various required documents to the SEC and to the other organizations. They also have to choose underwriters.

Who are these underwriters?  They’re investment banks that agree to underwrite or take risk on the new shares. In the Alarm.com case, the underwriters are –well, about every bank you’ve ever heard of: Goldman, Sachs & Co.; Credit Suisse; BofA; Merrill Lynch; Stifel; Raymond James; William Blair; and Imperial Capital.

What do the underwriters do? It’s their obligation to stand behind the stock in the IPO process. They weigh in on the preliminary prospectus, particularly on the business description. Did I mention that the preliminary prospectus is a second 250-page document, which I did not print out.

Between the S-1 and the preliminary prospectus, the estimated value of the IPO went from $75 million in the S-1 filing to $98 million in the preliminary prospectus. That jump represents what the lead underwriter believes the market will bear.

The preliminary prospectus has another name. It’s called a “red herring.” Not a very flattering name for a document you’re going to base an investment on, if you ask me. But that’s because I didn’t know the third definition of red herring until today.

Here are three possible meanings for a red herring:

1. A smoked fish, which is red and has a pungent smell.
2. Something intended to divert attention from the real problem or matter at hand; a misleading clue.
3. Also called red-herring prospectus. Finance. a tentative prospectus circulated by the underwriters of a new issue of stocks or bonds that is pending approval by the U.S. Securities and Exchange Commission: so called because the front cover of such a prospectus must carry a special notice printed in red.

Now we’re ready for the next step: The road show. “Red herring” in hand, the underwriters and Alarm.com folks visit big cities and talk to investors about how great Alarm.com is.

The roadshow will last one- to two weeks while underwriters "build a book"—that is, compile a list of potential investors. Their goal is to build the book to well beyond what they need to sell. So if they have to sell 7 million shares, for example, they want to get orders of more than 7 million. That’s because in the aftermarket, there are people who may flip the stock for a small profit.

Most of the stock will still be owned by the Alarm.com management and their private equity investors. Those guys cannot sell the stock for a certain period of time—roughly 150 days.

Typically an IPO represents only 25- to 40 percent of the value of the company sold to the public. The public shareholders are the ones who could possibly flip the stock. Still, it’s good to have lots of orders for the stock above and beyond what’s required. It stabilizes the price in the case of flippers.

Once the underwriters are comfortable that the book is robust enough, the IPO happens.

About a week after the IPO, the final prospectus comes out and anyone who owns stock gets this final prospectus.  It is no longer a red herring! It includes information on final commissions, who sold what stock, disclosures about how much the underwriters got paid, and ultimately the net proceeds.

Alarm.com and the underwriters are in road trip mode now. If all goes well the IPO should happen by the end of the month. In the first week or so of July, we should have a new and improved number on the value of the IPO and the fully diluted market value for Alarm.com.

According to the red herring prospectus, the common stock to be outstanding after this IPO will be 44,846,440 shares. The underwriters will get a 30-day over- allotment option to purchase up to an additional 525,000 shares.

 

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by: Martha Entwistle - Wednesday, June 10, 2015

There’s been a lot of talk about cloud services and managed services proliferating in the security industry, but “to a large degree it has been a head fake,” according to John Mack, EVP and co-head of investment banking at Imperial Capital.

Many of the so-called cloud products are not true cloud-based systems, and managed services is in it infancy as well, Mack said.
 
He believes that the news that Dean Drako, owner of cloud-based VMS provider Eagle Eye and founder of Barracuda Networks, has purchased Brivo, the original cloud-based access control system, may help propel the emergence of a new kind of security dealer.

“These guys will be the leader,” he said.

“My guess is that we will see the evolution of a new class of dealer focused on the managed services and cloud-based model” who will do high volumes of business with small- and medium-sized businesses, Mack told me.

The combination of Brivo and Eagle Eye products (the companies will offer an integrated version of their products beginning in July) would provide a “complete solution” for dealers to sell as a managed services offering to the SMB market and multi-site location businesses, Mack said.

This new managed services security dealer would have to be more like an alarm dealer who focuses on RMR as opposed to an integrator who focuses on install revenue. They would also have to be “sales oriented guys not tech-oriented guys,” Mack said.

But, they’ll have to have the technical sophistication to deal with SMB owners, he said.

This model involves high-volume work, which requires capital to subsidize the installation, larger dealers would likely have to secure a lines of credit from banks.
 
But the RMR would be much higher than the alarm model. It could be as much as a couple hundred dollars versus $40 for an alarm monitoring contract, Mack said. Importantly, the attrition rate for Brivo customers “is meaningfully lower than the 12 percent you hear about [in the residential market],” Mack said.

“It will be a great business model that can create a ton of value for dealers,” Mack said. With a lot of managed services RMR, that dealer would be an attractive acquisition target for ADT, Stanley, Protection 1, and Diebold that want to increase their presence in the SMB and multi-location business market.

Who knows, Mack surmised, the future may find a Monitronics-type business that runs a dealer program and buy accounts from security dealers who sell Eagle-Eye/Brivo-type products. “That would take bank capital- raising out of the equation.”

“A lot of positive things for dealers could spin out of this business model,” Mack said.

Imperial Capital advised Brivo in the deal.

 
 

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by: Martha Entwistle - Wednesday, June 3, 2015

Vanderbilt Industries on Monday announced it has completed the acquisition of the Security Products business from Siemens.

The deal, announced in October, expands Vanderbilt’s footprint, R&D capabilities and product portfolio. The Siemens' division has been rebranded as Vanderbilt and is headquartered in Wiesbaden, Germany.

Joseph Grillo, Vanderbilt managing director, spoke to Security Systems News in November about the deal. Here's a llink to that story where he said Vanderbilt will look for more acquisitions.

And here's a link to a story about proprietary versus open systems. It's based on a TechSec educational session that Grillo participated in.

In Monday's announcement, Vanderbilt said it will expand beyond its presence here in North America and in Europe and is particularly interested in South America and Asia Pacific.
 


The Security Products division brings with it access control, intrusion alarm and video surveillance products. Its brand names include: Aliro, Alarmcom, Bewator, Cotag, Europlex, SPC and Vectis. Vanderbilt plans to retain existing brand names.
 


In a prepared statement, Grillo said the company has "a commitment to reinvest at least 10 percent of our annual revenue into new research and development, and therefore, look forward to introducing new innovations that exceed industry expectations and drive sustained growth

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by: Martha Entwistle - Wednesday, May 27, 2015

Alarm.com's announcement that it will go public has a lot of people talking inside and outside of the security industry. Many of the insiders, however, will not talk on the record, at least not right now.  

I was interested in talking to someone who knows IPOs, understands the security industry and is familiar with Alarm.com, and I came up with Chris Black. Black is the former CFO of Vivint who helped Vivint prepare for the sale to Blackstone. He's also helped other companies go public. Today he works outside of the industry as CFO of Viamedia and as a board member of Sports Information Group which owns the Daily Racing Form.  

In an email interview Black called Alarm.com "a terrific company with a strong management team that I gained a lot of respect for during my interactions with them while I was at Vivint."

He said an IPO can "have a transformational impact on the business" and a positive affect on the industry.

"The IPO will provide them with access to another source of capital to continue to grow the business and invest in new products and opportunities. I also think it is a great event for the security industry as a whole. It serves as further validation of the space and will bring in new equity investors that may or may not have looked at security companies in the past,"

The only potential downside, Black said "is the amount of time the management team, particularly the CEO and CFO, are required to spend on investor relations activities including calls with equity analysts, investors and presentations at equity conferences and the like."

How might the IPO affect customers?

"This is really just another form of financing the growth of the business and shouldn't have an immediate impact on Alarm.com's customers one way or the other. Longer term, one could assume that access to public equity will allow the company to invest in the business and continue to develop new products and enhance existing ones either organically or through acquisitions, or both," he said.

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by: Martha Entwistle - Wednesday, May 20, 2015

Apollo Global Management is about to take one giant leap into security with its May 19 agreement to acquire Protection 1 and ASG Security.

Under the agreement, the combined companies will operate under the Protection 1 brand, with Protection 1 CEO Tim Whall at the helm.

Security Systems News reported on the proposed deal last week. Here's that story.

I had a chance to interview Protection 1 CEO Tim Whall, CMO Jamie Haenggi and ASG's CEO Joe Nuccio last night. I was looking for details about how the new management might be structured, but that will have to wait until the deal is closed. The earliest possible closing date would be July, Whall said.

The May 19 announcement did not include proposed terms of the agreement, though $2 billion has been reported by Rueters.

Whall said that the “combination of Protection 1 and ASG instantly gives both companies a wider footprint where they each did not have one and a greater density in the markets where we overlap. There is a definite benefit for the customers as well as the employees. And given our like-minded approach to the operations, the combination will be a force in the marketplace."

Haenggi added that “the combination of the two companies creates a $40 million recurring revenue and over $600 million entity, with more organic growth and acquisitions on the horizon. It has never been Protection 1’s or ASG’s goal to be the biggest—it has always been both companies aim to be the best both for our customers and our employees.”

Whall, Haenggi and Nuccio all spoke about the benefits of having a private equity group the size of Apollo (this group manages $163 billion) involved in the security industry. When Apollo gets involved, other funds take notice, Whall said.

That means more resources for Protection 1 and potentially for other security industry companies.

I spoke with Michael Barnes, a partner in the consulting and advisory firm Barnes Associates, who is advising Apollo. I asked him about the people at Apollo who are behind the deal. Barnes said while Apollo is a huge fund with many employees, "the team that has been focused on the security alarm industry and driving these deals is relatively small. They are very smart and they cycle through tough decisions quickly. They should make a great partner for P1 and ASG."

How might the group from Apollo work with managment? Barnes said, "From what we can tell, their philosophy seems to be to pick the best horse and jockey and then let them run. To extend the analogy, I am sure they will influence things like what races they enter, but as long as they are winning they will likely just focus on making sure they have the needed resources and otherwise stay out of their way."

I posed the same question to the folks at Apollo in a couple of calls last night, but they declined comment.

Whall, Haenggi and Nuccio also spoke about how the new Protection 1—with the staff, expertise and client base and geographic coverage that ASG brings—will be uniquely positioned in the industry.

Haenggi said that Apollo has been studying the industry for some time. They liked that Protection 1 has "not only has the national footprint, but also the breadth of services and markets serving residential, commercial and national accounts," she said.  "Back in the day, there was ADT that had the size and breadth. Today, there is no one serving across all of these segments with the size of Protection 1. We are in a position to take that lead but do it with a decidedly ‘Protection 1 approach’ to business."

Barnes concurred with Haenggi, saying P1, especially with ASG added, is the largest industry player with "a business model on which most of the industry was built. That is, having a large commitment to specific geographic markets and a broad range of product and services aimed at virtually the entire spectrum of customer types—everything from low-cost, entry-level residential systems, including a DIY offering, all the way up to large-scale systems for the commercial and institutional segments.

Both companies also know how to acquire and consolidate smaller companies, Barnes noted. "This robust approach is in contrast to virtually all of the other large, national players, who are more narrowly focused, such as Tyco, Stanley and Diebold on commercial markets, and ADT, Vivint, and Monitronics primarily on the residential market."

What does Tim Whall say about Protection 1's expansion plans? Will it expand beyond the U.S. market? “I think it's safe to say that Protection 1 will hold not just a U.S. footprint, but a North American footprint," he said.

Asked about possible aspirations for a global presence, Whall laughed and said: “Well, before we talk international, let’s get this deal signed first and over the line—we’ll see how international we get, but I certainly would not rule out lots of growth from Protection 1 over the next several years.”

Private equity is no stranger to security, especially in the past two years. Recent deals include: Vivint to Blackstone, SAFE to ICV Partners, ACA to Norwest Capital, and most recently, Ackerman to Imperial Capital, Barnes noted. However, this deal stands out, he said.  "I can’t remember an investor like Apollo making a first step into the industry, on this scale, doing two transactions at the same time, and particularly with such a good fit between the two."

To attract private equity investors, Barnes said you "have to have all of the requisite pieces of the puzzle…size, capability, management, and growth. In addition, you generally have to have a strong overall industry opportunity, since one is effectively competing against all other possible investment opportunities." 

The long list of dealmakers involved in this transaction include: Financing is provided by Credit Suisse, Barclays, Deutsche Bank, Jefferies and RBC. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal adviser to Apollo; Latham & Watkins LLP is acting as legal adviser to Protection 1; and Kirkland & Ellis LLP is acting as legal adviser to ASG Security. Morgan Stanley and Raymond James are acting as financial advisors to Protection 1 and Goldman Sachs is acting as financial advisor to ASG Security. Barnes Associates is advising Apollo.

by: Martha Entwistle - Wednesday, May 13, 2015

YARMOUTH, Maine—How about the news this week of a purchase of and merger of ASG and Protection 1?

I'm eager to see how this all shakes out. Taking a look at the potential 50.4x RMR mulitiple if the purchase price is $2 billion, Imperial Capital's Jeff Kessler repeated his oft-emphasized mantra that the multiple of RMR is not the be-all end-all of deal valuations. You need to look at EBITDA and Steady State Cash Flow, neither of which publicly available for these companies right now.

It's a hefty multiple though, something that Protection 1's Tim Whall has seen before, notably when HSM was sold to Stanley in 2007 for 60x Remember that? Whall ushered in the era where every alarm company owner and his brother thought they'd get 60x.

Kessler did take a gander at the per-subscriber numbers for the potential ASG/Protection 1 deal, and said that at $2 billion, the value-per-subscriber for these two companies would be $1,164. That is not a high number and it is lower that the current value of ADT subscribers and Ascent (Monitronics) subscribers, he said. BUT, then again, the mix of subscribers is not comparable, he added. For example, Protection 1 has residential, multi-family, wholesale customers—from cable companies and other entities—as well as national and large commercial accounts. ASG has a mix of resi, small commercial, large commercial and government. So, the "per subscriber" metric could also be thrown off by one of the specific groups of subscribers.

Kessler noted that the Protection 1 has "not been growing that fast" and said that cash generated has gone into it national accounts and small business divisions. He called the technology investments the company has made in this area "exceptional" and complimented its residential platform as well which uses "Alarm.com and internally generated software." He is a big fan of Protection 1's Don Young who he called a "tech guru in this industry."

Every time I speak to ASG, CFO Ralph Masino makes a point of talking about how most of the company's growth is organically generated. I have many examples, but here's a story from February 2014 where Joe Nuccio was talking about ASG's goal of reaching $10 million in RMR.

From that story:

Why is $10 million an important benchmark?
“It’s not the $10 million number that’s important, it’s [ASG’s] percent of growth year over year. [We’re able to continue to grow at that rate] even at our size,” Nuccio explained.
ASG likes to enter a new region every year. Those new regions generally start with an acquisition, but when ASG moves into that region it concentrates on internal growth, he said.
“We grow at 12 to 14 percent a year because we continue to develop our internal growth engine,” Nuccio said.
He pointed out that 76 percent of the $900,000 of RMR that ASG added in 2013 was generated by organic sales.
 

What will happen to the management teams of the two companies should Apollo's deal come to fruition? Protection 1 is clearly the larger of the two companies, but both companies have strong and highly regarded management teams. Maybe some of them want out ... for a little while anyway? We'll see. Kessler surmised that "Apollo would line them up and see who does the best job."

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