After spending the past 10 years divesting itself of non-core businesses, Tyco is now going to become part of a much larger company. And, after being a Milwaukee company since 1885, Johnson Controls will now have its official domicile, with Tyco, in Cork, Ireland. Here's a video interview I did with Mark Van Dover of Tyco Integrated Security about being a standalone company.
Tyco and Johnson Controls announced Monday that they would merge. We don’t generally see deals this big in the security industry. I don’t usually hear news about security deals on Marketplace when I’m driving home from work, or read presidential candidates’ remarks on security deals.
Of course neither Kai Ryssdal nor Hillary Clinton were talking about how JCI and Tyco will merge branch offices or how the combined company will nurture relationships with security integrators, they were talking about the tax-driven nature of the deal.
In moving its headquarters, or at least its tax base, to Ireland, Johnson Controls will save $150 million in taxes it would normally have to pay the U.S. Government. Tyco is experienced with domiciling outside of the U.S. having lived in Bermuda and Switzerland previously.
Tyco CEO George Oliver and JCI CEO Alex Molinaroli said they expect an additional $500 million in "synergies" in the next three years. They expect $150 million in savings in corporate reductions--within the next two years, and within the next three years $350 million in savings as the result of business and operational improvement.
People I talked to about these projections believe JCI and Tyco are good companies that are capable of reaching that $350 million in savings, but they say it could take longer than three years.
Once the savings are realized, the new company's challenge will be growth. Both Tyco and JCI have had trouble growing in the past three years. Will the combined company present the security industry with a better integrator? Will the combined company, on the product side, be good at nurturing relationships with integrators?
During the Monday investors call, Oliver and Molinaroli spoke a lot about the opportunity the combined company has to "provide building products, services and technology that can serve customers' needs holistically." Molinaroli said the integration at the branch level will not be that complex. JCI is experienced with this kind of consolidation, having done the same when it acquired York, an HVAC company it acquired in 2005. Molinaroli said he was speaking "as someone who came from the branches."
Oliver pointed out complementary capabilities and geographies. One company has a big presence in Asia and the other in Europe, and both have a big presence in North America.
Oliver said the combined company gives "us a big leadership position in the new market being developed in smart buildings." He added "we see our industry transforming" and the "real opportunity is [with] the Internet of Things and the smart building."
Here's a story from April 2014 when I visited Tyco's Global Center of Excellence in Birmingham, Ala.
I interviewed Oliver, Van Dover and Renae Leary, Tyco VP global accounts. During that visit, Oliver talked about the importance of connected systems and the information that can be derived from those systems. “Integration capability is fundamental to our success,” he said.
A little more from that interview:
Tyco’s enterprise-level security systems include intrusion, access control, video management, fire systems and integrated systems, but the new center will enable Tyco to tie more building systems into solutions for its global customers, he said.
One immediate opportunity is fire. According to Leary, an estimated 20 percent of Tyco’s current global enterprise customers use Tyco for fire as well as security. Tyco aims to get its existing global enterprise customers to all use Tyco for fire. She predicted that the number will increase incrementally as current customers upgrade existing fire systems and/or add new facilities, and as new customers come on board.
While many global customers are still working on integrating access and video, many are starting to want to integrate fire, identity management and PSIM. “Customers are starting to try some of these things,” Leary said. “It’s picking up steam [through] trials and pilot programs.”
The ultimate goal is to have all systems integrated on a single platform for these customers and to provide business intelligence, systems and solutions “to better manage data in real time and act on data immediately,” Leary said.
Leary said that the company’s “core commercial business is still a huge focus for us.” Oliver added that "the new Tyco" is designed to "serve [commercial] customers top to bottom; [we're] very competitive at all levels."
In addition to integrating systems together, adding new technology will also be important to Tyco’s growth and ability to serve businesses large and small, Oliver said.