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Securitas Systems buys again

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Friday, December 21, 2007
The acquisition team at Securitas Systems has been busy, that's for sure. Click on the Securitas Systems label below for the full story, but here they go again. This time, it's a buy in the Netherlands, Installerende Partners, and it's a relatively small one. However, not only did they announce their traditional 5-7x EBITDA range, they also supplied sales numbers: approximately MSEK 26 (MEUR 2.8). Must be nice making buys in MSEK instead of the rapidly falling dollar. Anyway, now I can try some math. Securitas Systems has said they look for businesses approaching 40 percent of gross revenues in service money, but that's unlikely to be the case with a small integrator with only 25 employees, so it's probably more like 25 percent in service. That's going to bring their gross margin down into the 20 percent range, no? (I'm trying out relatively newly acquired business-analysis knowledge here, so please correct me with the comment button below if I'm way off. Remember, I was an English major...) So, of their $4 million in 2006 revenues, that's $800,000 in gross margin. As a company 20 years in business, it probably doesn't have a lot of financing costs or undue overhead, so we'll back out maybe $100,000 of that and say they've got EBITDA of $500,000. Multiply that by six and you've got $3 million as a purchase price, which is .75x 2006 revenues. If they have 25 percent of revenues in service, that's $1 million annually, which is $83,333,333 in RMR. So $3 million as a purchase price would be 36x RMR. What do people think of that?

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IR makes big HVAC buy

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Thursday, December 20, 2007
I'm not sure how this affects their security play, but when you consider the increasing overlap of security and building controls, this may have some crossover. Truncated release follows. Lots of big numbers (and capital letters, which I hate - stop shouting at me): INGERSOLL RAND TO ACQUIRE TRANE INC. FOR APPROXIMATELY $10.1 BILLION • Transaction Creates a Global Diversified Industrial Company with expected Pro Forma 2008 Revenues of  $17 Billion and $2 Billion of EBIT • Transaction Immediately Accretive to Earnings with Estimated 2008 EPS of $4.00 • Cost and Revenue Synergies are Expected to Exceed $300 million by 2010 • Acquisition Price for Trane of $36.50 Per Share in Cash and 0.23 shares of Ingersoll Rand Common Stock per each Trane • • Share Equal to Approximately $48.00 in Total Value per Trane Share Hamilton, Bermuda and Piscataway, New Jersey, December 17, 2007 – Ingersoll-Rand Company Limited (NYSE:IR) announced today that it has executed a definitive agreement to acquire Trane Inc. (NYSE:TT), formerly American Standard Companies Inc., in a transaction valued at approximately $10.1 billion, including transaction fees and the assumption of approximately $150 million of Trane net debt. Trane is a global leader in indoor climate control systems, services and solutions with expected 2007 revenues of $7.4 billion. Under the terms of the merger agreement, which has been approved by the Boards of Directors of both companies, Ingersoll Rand will acquire all outstanding common stock of Trane. Holders of Trane's approximately 200 million common shares will receive a combination of $36.50 in cash and 0.23 Ingersoll Rand shares of common stock per each Trane share. The total value for this transaction was $47.81 per Trane share based on the closing price as of December 14, 2007. The transaction which is expected to close late in the first quarter or early in the second quarter of 2008, is subject to approval by Trane shareholders, regulatory approvals and customary closing conditions. Herbert L. Henkel, Ingersoll Rand chairman, president and chief executive officer, said, "The combination of Ingersoll Rand and Trane will create a global, diversified industrial company with projected pro forma 2008 revenues of $17 billion. The new Ingersoll Rand portfolio will include an $11 billion Climate Control business which will offer high value equipment, systems and services necessary for delivering solutions across the temperature spectrum for indoor, stationary, and transport applications worldwide. "As a result of expected revenue and cost synergies, we are confident that this acquisition will improve Ingersoll Rand's future earnings growth potential. We believe the new Ingersoll Rand will be capable of sustaining annual organic revenue growth averaging 5-7% and EPS growth exceeding 15% per year, both in excess of our former growth guidance. In particular, assuming timely consummation of the proposed acquisition, we anticipate earnings of $4.00 per share in 2008." At the very least, this sounds like something that's going to make IR more profitable, and that could make them more aggressive in the security market in general. Could be less cash on hand for other security acquisitions, though.

Rest easy with retro fire system?

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Thursday, December 20, 2007
One thousand government workers were evacuated, but there were no injuries reported during yesterday's fire in the Old Executive Office Building, which apparently started in Dick Cheney's ceremonial office. Reports say the cause of the fire is still under investigation. The Old Executive Office Building (one of my favorite buildings in Washington, which someone renamed the Eisenhower Executive Office building, when I wasn't paying attention) faces the West Wing and is part of the White House complex. A story today in time.com says one reason there have been few serious fires in the White House is because there are always people there, so smoke is not about to go unnoticed. That makes sense, but the story also says "a serious fire detection system was installed in [the White House in] 1965. And it's very sensitive. When a sensor detects smoke, a warning goes off in the Secret Service's control center in the White House." A serious 60s fire detection system? That system may be Mod, but not modern. Let's hope the fire marshal's paying attention and it's been updated a few times since Lyndon Johnson was president.

Mystery security company stops another crime

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Wednesday, December 19, 2007
Today we find yet another example of the anonymity of security companies when it comes to the mass media and general public. It's a nice story about how a business owner was able to avert being robbed thanks to a call from his security company and to his own intestinal fortitude (I'm not sure I'd be psyched about pulling a robber out of his pickup truck - what if he'd had a gun and was dumb enough, or scared enough, to use it?). But why this sentence? The three - all teenagers - were apparently in the process of grabbing a set of Cooper mud tires from a warehouse behind the store at 1429 Grand Ave. when Quentin Kilwien arrived about 7:15 p.m., after getting a call at home from a security company. Really? He got a call from "a security company?" Just some random one? It must be awesome to have a security company in town that just check on everybody and then gives a call to a business owner if they see something happening at some random location. What? That's not how it works? Oh, you mean Mr. Kilwien actually pays a company, his security company, a specific one with a name and everything, to protect his business, and in this case the investment was warranted? Huh. You wouldn't really know that from this story. Security companies need to be visible to the general public, both for marketing and deterrent reasons. If criminals are more aware that there are experienced security firms in town, they'll be less likely to target those businesses that advertise their system with window stickers and lawn signs. And if other businesses see that paying for security is a wise investment, they'll be more likely to make that investment. The media is your friend, even if they don't often act like it.

Builder market to stay in the tank

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Tuesday, December 18, 2007
I've just posted January's Special Report on the state of the finance world for integrators and alarm dealers looking for loans. The verdict? Things aren't as bad as the mass media make things out to be, as long as you've got a tight, profitable business with sound metrics and management. Same as always. Should the economy fall into recession, causing interest rates to rise, then capital might get tight, but that hasn't happened yet and no one would tell me that was on the horizon. One section of the market that has been affected, however, is that portion of alarm dealers who rely on the new-build market, which is utterly and thoroughly in the tank. Lenders said any company that relies on the builder market for growth has always been a poor investment anyway, but now that company is really a no-go. With all that said, I think there was an undercurrent of sentiment going unsaid by those I interviewed that felt like: "Actually, we're going to be a bit more discriminating about to whom we lend money." But maybe I'm reading too much into their denials that it was business as usual.

Reminder: Move away from the lampshade

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Tuesday, December 18, 2007
Tis the season for office holiday parties, and United Publications, publisher of Security Systems News, I'm happy to say, does it right. First of all, it's close by, next door in a nice seaside restaurant. It's always on a Tuesday night, so it's not taking up holiday weekend hours. It starts at 5 and lasts about two hours. And best of all: There's no dancing required, expected, or even allowed. Tis the season, as well, for office party news stories. Here's a funny NPR piece about a woman whose career was actually enhanced by jumping on stage at her office party to sing and dance to "Love Shack." And here's one from today's Globe with guidelines about an appropriate drink to order and the perfect song to request from the band.

Securitas Systems buys Securex

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Tuesday, December 18, 2007
Securitas Systems has strengthened its retail portfolio by acquiring Securex, a division of LP Innovations that focuses on retail security. This comes about three months after its acquisition of PEI. Here's my favorite part of what's a very short release: Securitas Systems has purchased the assets of Securex, a division of LP Innovations, Inc. The purchase price is between 5-6x EBITDA. This is a classic piece of seeming to give information without actually giving information. It's the same way they characterized their PEI deal, as a multiple of EBITDA. And maybe it's a sign they're buying healthy companies, who have solid positive EBITDAs. But a multiple of revenues or RMR would give us a much better idea of the size of the deal, obviously.

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McCoy exonerated

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Monday, December 17, 2007
A jury found Iowa state senator Matt McCoy not guilty of charges he attempted to extort $2,000 from Reid Shultz owner of Security Plus in Des Moines. According to the Des Moines Register story, Thomas Vasquez, the paid government informant and former salesman for Security Plus, was not considered the most reliable guy around. Two sources called him a "pathological liar" in testimony.

The ROI sell for cities and towns

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Monday, December 17, 2007
You know that ROI sell that everyone's harping on? Well, it works for municipalities, too.
As budgets tighten across the country, cities and towns increasingly are loathe to pay for graffiti clean up, as are local merchants. Check this story for a dose of Christmas spirt. Just as the local business district gears up for a big weekend of shopping, here come a bunch of idiots to make the place look extra uninviting. But your opportunity lies in this great quote: "This goes back to us being strongly in favor of cameras," Sedwick said. How much does it cost to clean up graffiti? How much does the camera system cost? Where does one cancel the other out? This insurance company sees the trade-off as being solidly in its favor. If you make the pitch to your local city/town council, logic says they'll see the trade-off as a positive one, too.

This is why analytics seem so attractive

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Sunday, December 16, 2007
Wondering why analytics seem like such a good idea? See this story. The big question is whether alarm events can programmed to produce small electronic charges.

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