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More on activist investor Ackman and ADT

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Wednesday, July 17, 2013

There was additional speculation this week about whether activist hedge-fund manager William Ackman is intending to take a stake in The ADT Corp. An article in The New York Times said that his investing in the home security/home automation giant is more likely than his buying into FedEx, another company he is rumored to be considering.

The article said that’s basically because Ackman would have less say in FedEx, a much larger company than ADT, where he could wield greater influence.

There’s a possibility we could find out the answer later this week. Bloomberg reported July 9 that Ackman, who runs $12 billion Pershing Square Capital Management, was raising $1 billion over the next 10 days to buy a stake in a “large-capitalization, investment-grade U.S. corporation that principally operates in one business” that he didn’t name.

If he's successful, that would mean he’d have the money by this Thursday or Friday and he could reveal his pick then. However, he also could wait until later this year before announcing the choice, Nicholas Heymann, co-group head of global industrial infrastructure for New York-based William Blair & Company, told me.

"The issue is once you raise the money you have to put it to work," he said. However, Heymann said, "chances are, especially if it happens to be including some of his other 12 billion dollars of funds that he manages in addition to the $1 billion single stock fund, you and I are not going to know what his positions are until they’re reported 45 days after the close of the quarter, so we could end up hearing about this in mid-November."  The news could come earlier if Ackman chooses to voluntarily disclose it, Heymann said.

ADT has told Security Systems News the company does not comment on market rumors.

But some other important industry news is also related to ADT, and that’s the recent announcement that Monitronics plans to acquire Security Networks next month.

“We continue to look at the ramifications of the Security Networks acquisition by Monitronics as it relates to the implied value of ADT,” Heymann said.

In a July 11 William Blair & Company industry report authored by Heymann, the company explained how that pending deal sheds light on the value of ADT. Here’s some more detail from the report:
 

Our belief that ADT remains the most undervalued company in our multi-industry universe was starkly highlighted with the announcement after the close yesterday that Ascent Capital Group’s (ASCMA $84.15) primary operating subsidiary, Monitronics International, has signed a definitive agreement to acquire Security Networks for total compensation of $507.5 million, or about 60 times Security Networks’ average recurring monthly revenue. Before the announcement of this transaction, Monitronics was the third-largest North American residential security company and Security Networks was the 14th-largest. Following the completion of the proposed acquisition, the combined company will have 1.034 million customers (almost the same number as Protection One, the current second-largest North American residential security provider) and, on a pro forma basis, hold just under a 4% share of the North American residential security market.

… The valuation paid for Network Securities by Monitronics would value ADT between $67 and $74 per share. On an implied market capitalization basis, ADT would be valued in a range of $15.4 billion-$16.8 billion, well above the company’s current $9.2 billion market capitalization.

ADT stock closed at $42.68 per share today. That's down 28 cents or .65 percent from its $42.96 close yesterday and Heymann speculated later today that talk that Ackmann was NOT interested in buying into ADT may have caused the drop, the opposite of last week when ADT stock climbed based on speculation that Ackman was interested. "We think Ackman may have been at this big hedge fund meeting this afternoon and said something that implied he was NOT looking at ADT ... or an ADT type company," Heymann told me in an email this afternoon.

So which company does Ackman have his sights on? The situation is decidedly very fluid, and very interesting. I’ll be reporting more on this. Stay tuned!

 

 

Missouri city the latest to outsource false alarm services

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Wednesday, July 17, 2013

The trend of municipalities outsourcing false alarm collection services continues, and as in past instances, the most recent agreement involves Irving, Texas-based PMAM, a global IT firm with four U.S. offices and an office in Mumbai. Their slogan is “Around the World, Around the Clock,” so you can see why their false alarm tracking and billing services might appeal to cities hoping to nip the problem in the bud. 

According to an article from KSMU (Ozarks Public Radio) in Springfield, Mo., the police department in that city is the latest to do away with its in-house handling of false alarms, opting to transfer those duties to PMAM. Springfield Police Department dispatchers receive as many as 400 false alarm calls a month, the article noted.

Like any outsourcing move, the new arrangement saves resources, authorities say. In addition to being a drag on budgets, false alarms also stretch law enforcement in potentially harmful ways, sometimes preventing or delaying response to critical calls.

The advantage of outsourcing false alarm services to a company like PMAM is that, ideally, the IT giant has the capabilities to identify a false alarm, home in on the cause (an installation flaw or dated system is often the culprit), and then teach people how to avert future false dispatches, and the fines that eventually accompany them.

According to the article, the Springfield Police Department has received roughly 2,100 false alarm calls thus far in 2013. The city’s ordinance levies a civil penalty fee, between $15 and $50, for those who have at least four false alarms. The charges escalate with each additional violation, according to the article.

False alarms are both a fiscal and logistical drain on towns and cities. But some of the things that might mitigate false dispatches, including system upgrades and more regular maintenance, are not always at the forefront of many customers’ minds.

It seems that until there’s more public awareness of the problem, and more measured steps to cripple the problem at its roots, municipal bodies are going to continue seeking out IT behemoths like PMAM for false alarm damage control.     

Credit scores and attrition: Correlation?

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Monday, July 15, 2013

The quest to reduce the dreaded attrition rate remains a high priority for anyone in the monitoring space, and companies continue to explore new ways to predict and prevent cancellations. Companies don’t just track attrition rates; they look for clues, like usage patterns, that could yield information about whether certain customers may be more prone to stay or go. 

While usage patterns remain a valuable tool for evaluating customers and forming effective business strategies (conventional wisdom says upsell to active users, and reduce prices to the less engaged), it’s not the only predictor companies use. There is also a significant correlation between credit scores, or Beacon scores, and attrition rates, according to Michael Barnes, a partner in the consulting and advisory firm Barnes Associates, who in a response on the CSAA’s Accent forum, said his firm reviewed data on over 2 million accounts. Here’s a bit of what he had to say:

“Generally speaking, the correlation changes over four ranges of scoring. Below 600, the statistical experience is very bad. That is, the accounts have a very high cancellation rate. Between 600 and 650 the results improve dramatically, with a general inflection point around 620+/-, which is why so many dealer programs (and, in some cases credit facilities) have restrictions around this area of scoring.”

Barnes added that scores above 700, in terms of attrition and retention, tend to behave the same as scores around 800. Scores in the ballpark of 650 tend to have poor cumulative performance, with the rates of cancellation almost twice as high over the first four years, Barnes notes. Unsurprisingly, rates of “infant mortality’—cancellations within the first year of existence—were exceedingly high among those with sub-650 Beacon scores, according to Barnes’ data.

While the data sample is large enough to provide a thorough understanding of the relationship between credit scores and attrition, Barnes points out that some qualifications are needed, since a slew of factors can create exceptions. Some of these key variables include installation fees, services provided, pricing and payment method, and even geographic location.

The above graph, made for SSN in 2009 by the Edmonds Group, also charts the correlation between attrition rates and Beacon credit scores. 

More news about IR spinoff; new president named

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Wednesday, July 10, 2013

IR announced in December that it would spin off its security division, and earlier this month announced that the spin off would be called Allegion, On Monday announced that David Petratis will serve as CEO, president and chairman of it security spinoff, Allegion.

Petratis, who will start his new job on Aug. 5, will join Allegion from Quanex Building Products, where he is currently CEO, president and chairman. Quanex, based in Houston, is a manufacturer of building products.

IR CEO Michael Lamach called Petratis an “accomplished leader in the manufacturing and marketing of code-compliant, high-value products that are specified by architects and engineers, and used by commercial and residential builders,” in a prepared statement.

Previously, Petratis was COO and CEO of Schneider Electric North America from 2003-2008, where he “grew its North American operations by more than $2 billion, doubled its revenue and completed several successful acquisitions.”  From 1994 to 2003, he was president of MGE UPS Systems Americas.

On Monday, Allegion also revealed its new logo.

Allegion will share IR’s headquarters in Swords, Ireland, but its operations will be based in Carmel, Ind.

Allegion, a $2 billion company, will have 7,600 employees in 35 countries including 20 production and distribution facilities.

Curbing central station turnover

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Wednesday, July 10, 2013

Earlier today, a participant in the Central Station Alarm Association listserv broached the topic of turnover in central stations. The author discussed several themes relevant to this topic, including the potentially negative impact on the bottom line, the strain on the training department, and the relationship between turnover and a central station’s culture.

The redeeming point from the post was the author’s statement that supervisors, rather than accepting a lack of continuity as inevitable, should instead take steps to better understand why people are leaving, and resolve to change the culture before more operators are out the door.

It’s a highly sensible approach to addressing the problem. But in the monitoring world, it’s easier said than done.

Steve Doyle, vice president and CEO of the Central Station Alarm Association, said turnover is a “perennial problem” for central stations, particularly when it comes to operator jobs, which are entry-level, often require late (or very early) “graveyard” shifts, and are seldom viewed as long-term career jobs.

Monitoring, of course, is not the only industry to encounter this problem. Traditional call centers, Doyle said, have an even higher rate of turnover. But while the issue may be native to the industry, there are steps central station managers can take to mitigate it.

Doyle said educational programs are a good idea. They can help operators “get a wider perspective of what they do, and how they relate to the authorities who have jurisdiction.” Recognition is another means of decreasing turnover, he said. CSAA, in particular, has been at the vanguard in terms of recognizing central station operators, particularly through its CSAA Excellence Award for Operator of the Year, which was recently presented for the eighth year running. But individual central stations can also present their own intra-company award.

Certifications and awards have become a source of pride and credibility for many central stations, not to mention a form of public outreach, Doyle said.

“If you go around to central stations and see certifications on the wall, what they’re saying to the public is that we didn’t just put somebody in the chair here,” he said. “We taught them the right way to do things.”

The takeaway from my conversation with Doyle was that even a problem as persistent as central station turnover can, to some extent, be curtailed. 

Activist Ackman eyeing ADT?

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Wednesday, July 10, 2013

Is the activist hedge fund chief William Ackman planning to buy a significant stake in ADT? There’s been some speculations that that’s the case, and as a result ADT’s stock price was way up yesterday. It rose 5.2 percent, its largest gain in months.

Ackman runs $12 billion Pershing Square Capital Management. According to a Bloomberg report, Ackman is raising money over the next 10 days to buy a stake in an unnamed “large-capitalization, investment-grade U.S. corporation that principally operates in one business.”

That information is from a letter that Bloomberg said Ackman sent to investors. He also said the stock trades at a lower multiple than its closest competitor and described the business as “simple, predictable, and free-cash-flow-generative, and enjoys high barriers to entry, high customer switching costs and substantial pricing power.”

The new fund will be capped at $1 billion and will invest alongside the New York-based firm’s main hedge funds, Bloomberg reported. Pershing will invest about 15 percent its $12 billion worth of capital in the same stock, “meaning the total investment could approach $3 billion. The firm, which already has a position in the stock, plans to buy more than 5 percent of the company and will talk to the board and management to bring about change.”

I’d like to hear some speculation about what kind of change Ackman might have in mind. I called Sarah Cohn at ADT, who said that the company does not “comment on market rumors or speculation.”

And this is all speculation, of course. Shares of FedEx were way up yesterday too, as some investors were betting that Ackman is looking at FedEx and not ADT.

Will keep you posted.

Senate Immigration Bill: On to the House

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Tuesday, July 9, 2013

Fifteen days after the Senate passed S. 744—the Border Security, Economic Opportunity and Immigration Modernization Act—the House Republican caucus will hold a meeting to discuss immigration, just as the House prepares to tackle its own legislation, should it follow through on Speaker John Boehner’s plans to scrap the Senate bill. The meeting, which will be private, is slated for Wednesday, July 10. 

The Senate bill, which passed 68-32 on June 27, would earmark about $46 million to bolstering security on America's southern border over the next decade. The border security portion of the bill includes some large-scale provisions, most notably the installation of monitoring technology along the southern flank, the construction of an additional 700 miles of new—and higher—fencing, and a substantial increase in the number of Border Patrol agents.  

Also included in the sprawling piece of legislation—it’s nearly 2,000 pages in length—is a measure that would require foreign workers to carry biometrically verifiable ID cards, which include a photo and a fingerprint.

Last week I spoke to Marcus Dunn, director of government relations for the Security Industry Association, who said he was encouraged by this inclusion, and optimistic that even if the House does its own immigration bill, biometrics would remain part of the equation. 

In our conversation, Dunn made a strong point regarding technology-based measures included in mammoth—and often polarizing—pieces of legislation like the Senate Immigration bill. Such measures, he said, have the advantage of being less emotionally charged than, say, debates about paths to citizenship, employment implications and wages. So, should the House take its time crafting piecemeal immigration reform, it’s not unrealistic to imagine a technological solution preceding a policy one.

Testament to the relative emotional neutrality of some of the security measures can be found in the amendment package, proposed a day before the bill passed, by a pair of Republican Senators: Bob Corker, R-Tenn., and John Hoeven, R-N.D. Many of the aforementioned provisions were contained in their eleventh hour proposal, and several commentators have credited the amendment as a key reason the bill gained enough bipartisan support to pass. It doesn't seem like a stretch to say that the security portion of the bill was crucial in allowing the Senate to function as it's supposed to: like a political "cooling saucer," a chamber where cooler heads prevail and compromise can be struck. In an era defined by deep ideological fissures in Washington, these things cannot be taken for granted.

With political pressure mounting to get some kind of legislation passed, the meeting scheduled for Wednesday bears close watching. Will Speaker Boehner backtrack on his statements about the House doing its own legislation, or stand firm? Will the Senate bill be jettisoned, or does it have more support in the House than many think? For my part, I'll be looking for what lawmakers have to say about that $46 billion figure. Stay tuned...

AISG goes after energy vertical

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Monday, July 8, 2013

American Integrated Security Group, a mid-sized integrator with big plans for growth, is at a tradeshow this week called Intersolar North America showing off its remote monitoring services and other tech it has to offer the energy and solar industries.

The show starts today and runs through Thursday at the Moscone Center in San Francisco.

Founded by Honeywell vet Levy Acs in 2007, IASG did about $18 m in revenues last year and Acs told me in March that he had $27 million in the pipeline for this 2013. His goal is to grow the business to a $50- to $100 million business. Here’s a story I wrote about the company in March.

In that interview, Acs talked about the solar power market being a major vertical focus for AISG. The company is also working to break into a different energy vertical—nuclear power plants. Specifically, AISG aims to protect nuclear facilities that are owned by those same solar energy companies.

A company statement noted that solar facilities are “typically located in isolated geographic areas with little or no ambient light sources, solar farms are highly vulnerable to vandalism, theft and terrorism.” IASG already does a fair amount of work with solar power companies. The company statement said it “secures 2 out of every 3 MW of power generated through solar in North America.”

In a prepared statement, Acs said: "The security solutions we design for utility scale solar sites [IP video/intrusion systems with remote video monitoring] provide a high level of security and allow users to gather both operational and critical security data, customize how data is received, and make informed decisions based on the information gathered from these systems.”

Stay tuned for an interview I did with Acs for ssnTVnews at ISC West, where he talks about the expansion, expected to be “all organic growth—no acquisitions.” I’ll be posting the video this week.

 

 

Vivint gets new CIO

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Tuesday, July 2, 2013

Vivint has a new chief information officer, Todd Thompson, who hails from the hotel and airline industries, the company announced today.

Another home security giant also just hired a new CIO. The ADT Corp., based in Boca Raton, Fla., recently tapped Kathleen McLean, a former telecom exec, as CIO.

But while the position of CIO is a newly created one for ADT, that’s not the case with Provo, Utah-based Vivint. The Vivint CIO job that Thompson is stepping into was formerly held by JT Hwang, who will become chief technology officer, focusing on the development and integration of the company's products and platform, the company said in a news release.

Thompson will be responsible for companywide information technology functions, Vivint said.

Vivint President Alex Dunn said in a prepared statement, “Supporting our culture of innovation with advanced technology and effective processes has always been a priority, and Todd's experience in IT leadership will be a huge asset to our business.”

One thing both ADT’s McLean and Vivint’s Thompson have in common is that each comes from outside the security industry.

According to the Vivint news release, Thompson most recently "was CIO for Starwood Hotels & Resorts Worldwide, where he led the team that implemented the industry's first new-age reservation system, drove initiatives to enhance revenue and the guest experience, and streamlined the IT function." Prior to Starwood, the company said, Thompson was CIO for JetBlue Airways and before that led consulting practices for SBI.Razorfish and Arthur Andersen Business Consulting.

“Vivint presents a lot of exciting advantages from a technological perspective,” Thompson said in a statement. “As a company, we have the opportunity to do things that have never been done before, and we want to do the same thing with information technology. We, in IT, are committed to continuously helping reimagine our business so it's more effective than anything else out there as we contribute to the company's future success.”

Thompson holds a BS in computer science and an MBA from Brigham Young University.
 

Greetings!

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Tuesday, July 2, 2013

For my “Monitor This!” debut, I’d like to use this space to introduce myself, now that I’ve completed my switch to associate editor at Security Systems News.

My name is Leif Kothe, and I’ve covered the security industry since September 2012, when I joined SSN as web editor. In that capacity, I covered—and learned about—most facets of the security industry, while also writing for other trade journals at United Publications, not all of them security-related. The position was as edifying as it was unfocused. As associate editor, I welcome the opportunity to zoom in on the central station side of things. And I am equally eager to cover the legislative topics of most relevance to the industry.

My wish is to make the transition as seamless as possible. In the interest of continuity, you'll find that we’ve kept many things the same. The blog has retained its title, it occupies the same spot on the homepage, and it will still cover topics germane to central station alarm monitoring.

With that said, I encourage those in the monitoring space not to hesitate to reach out to me, whether to offer news leads, or to simply introduce yourselves. In my brief time covering security, I’ve found the industry nothing but welcoming, and I look forward to exploring the industry further and hearing your stories in the process.

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