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Off to Maryland: Dynamark Convention 2013

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Tuesday, October 1, 2013

The bite of chilly weather hasn't yet snapped southern Maine, but that doesn't mean I don't welcome the opportunity to go 500 miles south for 48 hours, where stronger vestiges of summer remain. Tomorrow morning I'm off to Maryland with Tim Purpura, SSN's publisher, to attend the Dynamark Convention 2013 in Hagerstown, Md.

The event kicks off in earnest with a vendor show tomorrow evening, which will showcase products from a slew of manufacturers, with an emphasis on new and emerging technology trends. Day two opens with a joint presentation by Dynamark founder Wayne Alter and Wade Moose, owner of The Systems Depot, followed by workshops tailored to dealers, technicians, installers and sales personnel.

My Hagerstown stay will conclude with my inaugural central station tour of Dynamark’s facility, which opened in 2011. I eagerly await this phase of the trip, not only because it’s my personal debut in a central station, but because the descriptions I’ve heard of Dynamark’s facility tend to be peppered with superlatives.

I plan to be active on Twitter during the vendor show and workshop sessions (https://twitter.com/SSN_Leif), and I’ll also be updating my blog over the course of the next two days as events unfold, distilling the sights and sounds and key takeaways from the speakers.

For those attending, I look forward to meeting you there.

Is the 2G sunset causing outages?

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Friday, September 27, 2013

AT&T’s 2012 announcement that it would phase out 2G service left most in the alarm industry, well, unfazed. With wireless technology, such changes come with the territory. Moreover, it’s not the alarm industry but the mobile phone industry that dictates network “sunsets.” As Lou Fiore, Chairman of the Alarm Industry Communications Commission, put it in a recent conversation: “As long as you go cellular, there is no endgame here.”

A few months after the initial announcement, AT&T attached a deadline (Jan 1, 2017) to its 2G sunset. Since that time, the AICC has established a regular line of communication with AT&T, which sends a representative to attend the organization’s quarterly meetings.

AT&T informed AICC that, while interim changes would take place in advance of the 2G sunset, the changes would not affect the alarm industry. AICC members, Fiore said, were “skeptical.”

“We tried to impress upon [AT&T] the fact that our control sets hang on the wall, and if you change the operating parameters of that network, it may not work anymore,” Fiore said. “You can’t ask the homeowner to move the unit around to see if it works.”

Fiore, who is in the process of gathering information regarding possible outages for units tied to AT&T’s 2G network, said that in given locations, customers might still get 2G coverage but that there’s a chance it “won’t be as deep as it was before.”

Fortunately, there are some steps alarm companies can take to mitigate outages. Companies can switch to AT&T's 3G or 4G network by choosing matching hardware from a cellular alarm communicator, or to one of AT&T's competitors (the 3G and 4G networks of Verizon and Sprint are an option, Fiore said). Certain companies may be able to go with a wired network, but this is highly contingent upon business model, Fiore noted.

Still three years from the deadline, AT&T’s 2G sunset promises to be a story with several more chapters. I’ll be watching closely to see what kind of ripple effects it has on the industry.

Security-Net update with Jim Coleman

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Wednesday, September 25, 2013

Members of Security-Net, a group of 20 independent integrators that work together as a single national integrator, is having business meetings and doing some celebrating (its 20th anniversary bash is tonight) here in Chicago during the ASIS show.

On Monday, I spoke to Jim Coleman, president of Operational Security Systems, and newly elected president of Security-Net for 2014 and 2015. Other new officers include Skip Sampson, VP, Koorsen Security Technology, Steve Morefield, founder, Firstline Security, and Mike Painter of Alpha Corporation.

Coleman took some time out from training sessions that were taking place for the integrator’s SalesNet and TechNet groups. SalesNet and TechNet are networks of sales people and technicians from the different companies. The groups’ members communicate frequently and meet in person several times a year.

Coleman said the SalesNet group had a four-hour training session. “We brought in an expert to walk through the module and talk about sales leadership—how to be a sales leader in your organization,” he said. The TechNet group was in a meeting about “how you use technology internally in your organizations, how the same databases and networks that we use in the systems we install [should be used] to make your company more efficient and productive … to keep up with change in your company.”

Both groups were also spending time with Security-Net vendors working on product training. And speaking of manufacturers, Coleman said that Security-Net has negotiated an agreement with Honeywell, where “our members are going to become qualified to install and service Honeywell video and access control systems for national accounts that we would execute.” I asked him if the group would be attending Honeywell Connect, a conference in November that will for the first time bring together dealers from Honeywell’s three dealer groups, FAP, HIS and CSS. He said that Security-Net will have a large presence there. I’m going this year as well.

Asked what initiatives Security-Net is working on, Coleman said it plans to make further investment in its national accounts software platform that the group uses to share documents and other information among the different companies. Specifically, the group is working on some mobile apps for salespeople for when they do surveys, for installation people to report progress on what got accomplished, any issues in the field,” he said. The apps will be used by individual Security-Net companies internally and in concert with other companies when they work on the same national account, he said.

I’m off to the McCormick Center now for a day on the show floor. Looks like a beautiful day in Chicago from my hotel room. It took me all day to get here from Maine yesterday, but I did get to sneak in a run along the lake in the early evening. I'm looking forward to me meetings today, but I'm hoping to get out on that running path asap after the showfloor closes.

Skyhawk Security completes acquisition

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Wednesday, September 25, 2013

In another illustration of the industry’s evolution, Baton Rouge La.-based Skyhawk Security, which offers remote video monitoring, IP camera systems and access control systems for commercial customers (most in Louisiana, but some as distant as California), acquired local IT firm Big Networks. With the purchase of the firm’s assets and intellectual property, the Skyhawk Group (the name of the merged company) will have an in-house IT unit to supplement its security offerings.

The move establishes an interesting hybridized security company in the Louisiana capital. Brett Lofton, one of three managing members with Skyhawk, said the acquisition, in addition to bringing in an “in-house IT decision maker,” also presents some major cross-selling opportunities, particularly with respect to some of the clients the company inherited through the Big Networks buy.

Lofton said some of these accounts could potentially be a boon to Skyhawk’s security business. “We’ll certainly be cross-selling and trying to get in front of them to talk about [our security offerings],” Lofton noted, adding that this applies especially to companies with guards—customers who could find the security services palatable. Commercial customers may find value in the prospect of replacing or supplementing nightshifts with video monitoring, Lofton said.

Skyhawk also plans to explore cross-selling its hosted access control service, which Lofton believes is gaining traction. It will be interesting to follow what kind of role video monitoring and access control play in the company’s primary near-term plan: organic growth—much of which could be fueled by business in its own backyard. Stay tuned for more on Skyhawk’s plans and near-term goals in Louisiana and beyond.

AlarmForce's results rosy during ousted CEO’s tenure

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Monday, September 23, 2013

Exactly why the board of Toronto-based AlarmForce forced out the company’s CEO and founder, Joel Matlin, this summer remains unclear. Deepening the mystery is the fact that over the past year, the publicly traded company did very well with Matlin still at the helm, according to its recently released third quarter results.

I’ve gotten one side of the story: Matlin told me in August that his ouster in July as company CEO and president was “a mutiny created by my CFO, Anthony Pizzonia.”

Pizzonia, who is now interim CEO and president as the company searches for a replacement for Matlin, has not responded to my repeated requests for comment.

Matlin, who resigned from the company’s Board of Directors after his ouster, also told me that the company he founded in 1988 is “probably one of the best growing alarm companies in North America, with zero debt.” Third quarter figures released earlier this month confirm AlarmForce is very healthy.

For example, the company said in a news release that “revenue in the third quarter grew by $3 million to $36 million, or 9 percent, over the comparative period of 2012. Canadian revenue was up 4 percent to $28.0 million and U.S. revenue was up 29 percent to $8.5 million over the comparative period of 2012.”

Also, it said that RMR “increased by 8 percent in the third quarter and accounted for 91 percent of the total revenue. RMR growth was driven by an increase in subscribers and by a 2.5 percent increase in average revenue per subscriber, which rose to $27.07 as compared to $26.40 in the third quarter of 2012.” RMR is now more than $3.7 million.

The release also confirmed that the company has no debt and “funded all growth and product development from internal cash resources.”

Pizzonia said in a prepared statement: “For the remaining balance of the fiscal year, we will focus on growing our subscribers, increasing operating efficiencies, pursuing accretive investments that drive organic growth and returning excess cash to shareholders in the form of both dividends and share buybacks.”

AlarmForce provides security alarm monitoring, PERS, video surveillance and related services to residential and commercial customers throughout Canada and in the United States. The company is a leading provider of two-way voice alarm systems in Canada.

When I reached out to Matlin this month about the company’s earnings, he said his lawyer had advised him not to comment. Pizzonia has not responded to another request for comment.

Matlin had told me previously that he was working with his legal team to hold a proxy vote that he believes will result in the replacing of the board that forced him out.

However, the company already has moved to replace Matlin on the board. AlarmForce said Tobias Behrenwaldt “would serve as an independent director of the company until election at the next annual meeting of shareholders in 2014.” Behrenwaldt is currently a partner in Behrenwaldt Investment GmbH, the company said.

Matlin previously had complained to me that the board has too many investment types on it. “Now you have the financial guys running the company, certainly not the marketing guys,” he said. The board this summer also suspended Matlin’s son, a key member of AlarmForce’s marketing team, Matlin said.

Marketing expenses last year were substantial, according to the company’s third-quarter results release: “EBITDA increased to $7.6 million, or 78 percent, due to the reduction of advertising expenses related to the launch of VideoRelay in 2012. Excluding the impact of these marketing expenses that result in a charge to operating income, adjusted EBITDA increased by 1 percent to $17.4 million from $17.2 million.”

Was this an issue? Your guess is as good as mine. Stay posted as I follow this story.

Securing legal pot: What's the risk?

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Friday, September 20, 2013

As some know, the world of alarm monitoring can have murky legal waters, and it’s sometimes difficult to tell what risks you’re exposed to as a company until it’s too late. Even exculpatory provisions don’t necessarily make you immune to legal repercussions. If contracts aren’t worded with sufficient clarity or designed with the correct protective provisions in place, the exculpatory clauses may be unenforceable.

Clearly it’s best to err on the side of caution, and to ensure, if possible, that contracts are designed under the guidance of legal professionals with alarm industry expertise. A question posed today on Ken Kirschenbaum’s newsletter illustrates some of these good instincts. And it touched on a growing vertical that’s created something of an industry buzz: marijuana.

In summary, the questioner asked what kind of legal risks securing a marijuana dispensary or growing facility entails for an alarm company. Of course, with the substance being legal in certain states but illegal federally, it’s unrealistic to imagine that risks are the same across the board. From a legal standpoint, the most interesting sub-question, posed by the same questioner, follows below in paraphrase:

What if, for example, a driver under the influence of illegally stolen marijuana gets behind the wheel under the influence of the stolen substance and strikes a pedestrian, killing them? Would the alarm company to any extent be culpable?

In his response, Kirschenbaum said all businesses, illegal or legal, carry some kind of risk, and marijuana dispensaries or growing facilities are no exception. If an alarm system is well-maintained, functioning properly and code-compliant, risk is minimized considerably. “Why should the alarm company care what’s going on in the subscriber’s premises when that alarm signal comes in?” he asked. “The decision is whether to dispatch and to which agency, police department or fire.”

The marijuana example was merely the kernel which Kirschenbaum convincingly expanded into a much broader topic about what alarm companies can and can’t control. “I don’t think the alarm company is responsible for subscriber activity,” he noted. These words from an industry attorney should, if anything, be a source of comfort for alarm companies, who may not have to worry about another front opening up in the war against legal liability.

Still, some caution is advised. But what's Kirschenbaum’s advice for having dispensaries or other high-risk premises as subscribers? “If you get a call to alarm a pot dispensary, take the job and price it right,” he said. “At least you don’t have to compete against ADT."

Polk goes PE, Pagnani takes over at Capital One

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Wednesday, September 18, 2013

There’s news in the finance and investment world today. Bill Polk, who’s been running the security division of Capital One since its inception in August of 2011, is moving into the private equity world.

Polk is joining Egis Capital Partners, an investor in alarm.com. ECKey and, as of last May, CSSN. Here’s a video interview I did with Egis founder Robert Chefitz in June.

Tom Pagnani, who has worked with Polk at Capital One and at CapitalSource before that, is taking over as managing partner at Capital One.

I spoke to all three this morning.

“We continue to see enormous opportunities at all levels of the capital  structure. … From my point of view [there is great] equity opportunity with fast-growing younger companies. [Working together with Robert] is something he and I have talked about for a long time. And I think it's a great opportunity to move forward,” Polk said.

Polk noted that lately the private equity community “has had a sharp focus” on the security sector, but most in PE groups are generalist who lack expertise in the physical security business. Young companies looking for PE partners can benefit from working with a group, like Egis, that has that expertise, he said.
 
Chefitz said that Egis likes to “work closely with management teams and with private equity funds that want to invest in the business.” He said he’s ecstatic that Polk is joining Egis full time, noting that Polk brings experience and relationships with management teams of target investments and relationships as with other PE funds.

Chefitz said Egis is excited to continue working with Capital One.

Founded by Chefitz in 2007, Egis targets companies with enterprise values of $30 million to $200 million “that require a total investment between $10 million and $40 million.”  In addition to its investment in alarm.com, Egis closed in May on an investment in CSSN, a company that does passport and drivers license authentication and identification. “And we did that with the well-regarded Insight Venture Partners,” he said, adding that Insight has a brand new $2.5 billion fund as of this past April. Insight is an investor in Twitter and LinkedIN. “They have a tremendous brand name in technology and it’s interesting that [they’re investing in] security,” Chefitz said.

Egis has also “worked with Joe Grillo [former CEO of HID and Assa Abloy’s global technology division] in his business activities at ACRE,” Chefitz said.  

Tom Pagnani said that this move is a logical transition for Polk and said that it’s an opportunity for himself and John Robuck to “continue to make the Capital One name known in the security alarm industry.”

“Egis is going to be quite active,” Pagnani said. He called Polk is a key addition to the Egis operation. "We’re excited about the prospect of doing deals with Egis,” Pagnani said.

PERS: What we know, what we don't

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Wednesday, September 18, 2013

The projected expansion of the PERS market will be fueled by several realities playing in its favor. First and foremost, the demographics, highlighted by an aging baby boomer population, are compatible with growth in the PERS space. Similarly, PERS devices make seniors better equipped to remain in their homes and possibly reap considerable cost savings. The market is relatively resilient. The technology is simple. One of the biggest barriers to entry may be tapping into the right marketing channel, Josh Garner, CEO of AvantGuard Monitoring Centers, told me in a conversation we had earlier this year on the state of the PERS industry. The marketing hurdle is not to be underestimated. But it also seems far less an obstacle than, say, mastering the technical ins and outs of a product truly difficult to integrate or install.

These are all PERS-relevant realities of which the industry already has a fairy sound understanding. While much is known, many questions still linger with respect to the future of the market. That much became clear in a recent conversation with Barry Epstein, president of Dallas-based Vertex Capital.

One question with many ramifications for the market: what will reduce the annual attrition rates for PERS devices? Will it simply come down to a broader (and younger) customer demographic? Metrics are far from perfect, and the market is still green from an acquisition standpoint, but Epstein says the attrition rate for PERS devices hovers somewhere between 24 and 36 percent. Even at the lower end of that spectrum, these rates are not conducive to huge RMR value, and they could make private equity firms leery about getting involved, at least right now. A huge ancillary question to the one posed above will be what kind of innovations, on either the dealer or manufacturer end, can companies make to reduce these less than sterling rates.

Another question: Can smaller alarm companies do PERS? Or is the market going to remain the province of larger dealers or wholesale monitoring companies who can afford to support a PERS-only division? To what extent will traditional alarm companies have a share in the space at all? Epstein, who recently moderated a panel at the PERS Summit in Park City, Utah, said the conference naturally featured an abundance of PERS dealers, but only a small fraction of them had alarm accounts.  

The development of this market will be worth watching closely. When will the acquisition tipping point occur? What will be the force behind it? What factors, as yet undeveloped, stand to drive the market’s upward trajectory? And what about mobile PERS units?

In a broad sense, we're mostly sure where the PERS industry is going. But regarding specifics, questions abound.

The Washington Navy Yard shootings—and mass notification?

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Wednesday, September 18, 2013

After a gunman killed 12 people at the Washington Navy Yard on Monday, news reports say Defense Secretary Chuck Hagel will be reviewing physical security and access at all Defense Department installations around the world.

Presumably, he’ll be looking at whether those facilities have mass notification systems (MNS)—because it’s not clear whether the Navy yard had one. Even if it did, it may need improvement, because news reports indicate that only fire alarms were sounding and people inside the building were running out not knowing that a man with mental health problems, Aaron Alexis, 34, a civilian contractor and military veteran, was spraying the place with bullets.

For example, NBC News reported:

[A] worker there, Todd Brundidge, said he heard a fire alarm go off and later saw the gunman come around the corner.

"He turned our way and started firing, and we ran downstairs to get out of the building," Brundidge said. "No words. He raised the gun and started firing."

And USA Today reported:

Terrie Durham, an executive assistant at Naval Sea Systems Command, said a fire alarm sounded and she was trying to leave with a group of people when they encountered a shooter.

"We couldn't see his face, but we could see him with the rifle," Durham said. "He raised and aimed at us and fired. And he hit high on the wall."

In this case, sounding a fire alarm and having occupants leave that building may have been the right response … or would it have been better to have them shelter in place? A well-designed MNS, using the fire alarm system as its backbone, affords different options for different situations.

I’ve written before—in a story on the need for MNS, also known as an emergency communication system or ECS, in schools to protect students and staff from shooters there—that the military developed mass notification systems. The need for them became apparent after a 1996 terrorist bombing at a multi-story building in Saudi Arabia where American military personnel were housed. The only way to alert building occupants was the fire alarm, but lives were lost because evacuating in response to the fire alarm meant walking into the area where the bomb exploded.

The Department of Defense concluded an alert system was needed that could send a variety of messages in different kinds of emergencies, not just fires.

If the Navy yard didn’t have an MNS that could have helped in this situation, that would be sadly ironic.

 

TrendNet: A Cautionary Tale?

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Wednesday, September 11, 2013

Hundreds of TrendNet customers found out the hard way that products they purchased, billed as home security cameras, weren’t all that secure. In January 2012, a hacker was able to breach TrendNet’s website, circumvent security credentials and access some 700 live-camera feeds monitoring inside customers' homes. Many of the videos were then disseminated on the Internet, a curious fact by itself in light of the complaint filed by the Federal Trade Commission, which said security flaws in the cameras allowed for the “unauthorized surveillance of infants sleeping in their cribs, young children playing, and adults engaging in typical daily activities.” The online community continues to recover from the trauma of being exposed to such tedium.

But for obvious reasons, customers were unnerved. The FTC wasn't happy either. The oversight committee’s complaint alleging that TrendNet misrepresented its software as secure and failed to adequately protect its customers resulted in a settlement, which was reached last week, according to multiple reports.

The story reached mainstream news. Unsurprisingly, it’s on the alarm monitoring industry’s radar as well, as I discovered in a short conversation with Stephen Doyle, executive vice president and CEO of CSAA. Doyle said he just returned from an Alarm Industry Communications Committee meeting in which 65 industry members were briefed by an industry lawyer on the legal ins and outs of the TrendNet snafu.

In terms of pertinence to the industry, the case seems fringy in some respects, relevant in others. It’s true, after all, that TrendNet cameras are unattached to alarms, and designed specifically for remote monitoring of homes via smartphones and other mobile devices. But it's relevant to the industry insofar as it deals with a few topics in the forefront of people's minds.

One of those topics is the viability and security of do-it-yourself monitoring systems. Another is cloud security, a topic that stands to grow in significance with the spread of IP panels, and as more companies migrate information and services to the cloud. Whether a company’s data becomes more or less secure when it’s transferred to the cloud is a hot-button industry debate with little consensus. Cloud adoption is likely to expand, but that doesn’t mean there won’t be skeptics. Either way, the TrendNet case perhaps intensifies the debate.

At TechSec 2014, Jeremy Brecher, VP of technology, electronic security at Diebold, will tackle some issues in this vein as part of the educational program, while also exploring ways security companies can thrive in an increasingly cloud-based environment.

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