We’ve just listened to presentations by four company CEOs:
Brett Bontranger, Stanley Convergent
Robert Kleinman, AFA Protective Systems
Terry Olah, Alarm Detection Systems
Rich Perry, Security Networks
Now, Tom Buchanan leading a roundtable discussion. One note, since I can’t type nearly as fast as Sam, there’s some paraphrasing in my live blogging.
Tom: Can you talk about the last 12 months’ affect on attrition on your residential business?
Rich: We always see a bump around the holidays. Last year we were concerned that it would keep going up. We were pleasantly surprised that it didn’t.
Terry: We had an uptick of about a half percentage. When you look at components, you can divide attrition into two: Those who move, which can recapture; and those who don’t move. We saw higher percentage of attrition with those who didn’t move.
Tom: Robert, on the commercial side?
Robert: We were surprised, we had one significant loss-a big customer, but if you take that out, attrition was less than last year …. Another thing, our customers were paying their bills, if they left that was not the reason.
Tom: Did you delay any business initiatives in 2009, that you will ramp back up in 2010?
Robert: We didn’t delay initiatives
Terry: We didn’t ramp back any initiatives. We moved forward with some technology initiatives such as managed access, video monitoring.
Tom: Did you change the way you approached the market?
Rich: No. Our affiliates run their marketing their own way, and I didn’t see any big changes.
Terry: We continued what we were doing. We expanded some marketing on the technology side. You’ll find us on Facebook and Twitter, though that hasn’t had a material impact on sales yet.
Tom: What about different areas of the country that were particularly hard hit?
Robert: New Jersey and Florida were hit hard. Indications as of the end of January, are that thing are getting better.
Brett: There’s been softness in Central California, Vegas, Detroit, and Florida. Even in those areas, we’ve done a good job knowing where the fish are.
Tom: What about employees? Did you have an uptick in layoffs in 2009?
Brett: We had layoffs on G&A side last year with volume down. We right-sized in field. It was a difficult decision. I don’t [anticipate further layoffs] in 2010. But, the market is far from recoved in our view. It’s Something we watch in regular basis.
Tom: What about salary freezes or reductions?
Rich: We froze salaries, which was a little diffiicult to explain in some ways because we were hiring. We blamed it on our banks. (laughing) In all seriousness, even though we were growing our business, were concerned about attrition. At the end of the year, salaries were unfrozen and we paid bonuses.
Terry: As positions turned over, we were able to keep some people by reassigning positions and responsibilities in some cases. That way we were able to get thorugh year without layoffs and with no reduction in benefits.
Tom: Bill Polk mentioned state and local communities being hit hard and not have ability to print their own money like the feds. Are you finding that communities are looking for new ways to tax the security industry, with false alarms? security taxes?
Terry: Not so much with false alarms. A more disturbing trend, in Chicago, a lot municipalities have alarm-company owned equipment at municipality. Typically, the alarm companies collect a fee. More recently there’s been interest and movement in a couple cases of municipalities want to own their own equipment. In the case of fire alarm, the wya to mandate that monitoring be done there.
Rich: We’re licensed in 34 states. It’s a constant struggle to keep up with what they’re doing. So far, it’s been more of a nuisance than anything else, but we’re keeping an eye on it.
Robert: I think they’ve been doing a good job for a whiile figuring out how to tax us.
Tom: What about the crime rate. There are reports that it’s up and then down. What’s your experience?
Robert: There has not been an increase.
Rich: There’s a perception of crime going up. There’s more fear, and from marketing standpoint that’s helped.
Tom: Have you cut back on charitable giving?
Brett: We didn’t cut back. With as many branch offiices as we have, we do a lot of charitable events and we do a lot of community activity. It’s one thiing that bonds our offices. It’s something we promote and plan to continue to do in 2010.
Robert: We haven’t cut back on the dollar amount. We’ve been more selective where we give dollars. That’s were we’ll be for the future.
Tom: What examples do you have of positive things in 2009?
Rich: We grew substantially in 2009, and we worked on solidifying our infrastructure.
Terry: We had more tech time available to us, so we had more time for training. As a result of reassigning some positions instead of layoffs, there was more teamwork, camraderie with employees. Our employees truly appreciated that.
Robert: Our employees were grateful that they have job … We started calling vendors to renegotiate rates and they did renegotiate.
Brett: We grew profits organically. We did lot of acquisitions and got them successfully integrated. We’re sitting in a nice position going into 2010.
Tom: ADT announced the Broadview transaction. How will it impact the industry and your businesses?
Rich: It’s a direct competitor. It’s nuetral and probably positive.
Terry: It’s one less competitor in the door on some alarm systems. It can’t hurt. It’s probably helpful.
Rober: We’re not in the residential business, but if biz, but if ADT has integration problems anything similar to what it had with Wells Fargo, it will lead to customer dissatisfaction. And it may affect their commercial business because (with this transaction) they’ll be perceived more and more as a residential company.
Brett: I don’t have anything to add.
Tom: There will probably be some layoffs. Will you activley target Broadview employees, as it’s been suggested in the press.
Brett: Actively target, no. But we’re always looking to hire good talent.
Tom: What about the impact on ADT and Broadview dealers?
Rich: Those dealers may be nervous. We’ll see what happens, it may present opportunities for companies like ours.
Terry: In my estimation, Broadview ran first class operation, people may have been expecting a more premium price [than mid 40s]. I expect that the multiple that’ll be paid for P1 will be substantially less than Broadview. So, the Broadview transactioin creates a new standard in today’s market, one less than crazier numbers we’ve seen in the past.
Robert: I agree with some of that. But, when we did acquisitions, we look at what that acquisition meant as a fit for us. [Multiples paid for do not necessarily] set a mark for us.. What an acquisition would mean for us is the prime determinant of the price.
The conference is about to begin. I’ll have to check with Mike Barnes on numbers, but it’s a full house here. More attendees than I’ve seen in the past 4 years. And guess what? There are a lot more women in the audience.
In my book, that’s progress.
Bill Polk is opening the conference– it’s the 15th annual Barnes Buchanan this year. Polk says “More security transactions born in back of Breakers’ Fish Bar than anywhere else on the planet.”
One year ago we were in crisis; Where are we today?
A little history: “Banks used to be thought of as stodgy…doing things other than blowing up the world economy.” Starting in 1980s shift on Wall Street to a more risky “transaction culture.”
That lasted until costliest day Wall Street history, Sept. 15, 2008 Lehman Brothers went bankrupt” It signified the end of era…It was the “18 days of September,” the “parade of horribles” other bank failures, bailouts, lack of bailouts.
Last year a world in crisis. Today a far cry from a year ago… A yellow happy face on the screen now.”Almost here,” Polk says
Improved market sentiment; unit-tranches and second lien loans starting to make a comeback; pricing decrease but less than large corporate market; focus on maintaining discipline.
What about depth of liquidity? How big can club deal get? This a challenge.
Some notes from slides:
Bank market capacity up and budget up.
M&A and LBO expected to drive market…
Mezzaninie will continue to be important in middle-market sponsored deals in 1Q10. Pricing come down from 18 percent last year to 15 today.
So….cash now available in banks and non-banks and pressures form on high. Lenders getting more aggressive. Deal structure much more conservative than mid decade, but getting more aggressive.
Why so much money? Star of show is high-yield bond market and to lesser extreme mezzanine market. Second part of story is CLO story…institutional investors like hedge funds and CLOs…
CLOs buy into a lot of debt right now. They need to put money to work “while they can still breathe.”
“Investor money needs to be put to work.”
What about regulation?
“Washington become bigger force in market than ever been in history.” Stimulus funds, bail outs etc….
Obama not pro-business? There’s some word out there about this. It’s true, Polk shows slide, that not much private sector experience among Administration appointees.
House sweeping reform bill… Senate hasn’t done anything
Not full picture affect of regulation yet, but know that higher capital requirements
DEBT Burden and our fiscal future.
State and local economies have trouble paying bill now.. They don’t have the money printing presses that fed gov’t has. Not all states equal, for example Wyoming and Nebraska have budget surpluses ex.. this is important because state and local government are big customer of security industry.. Watch your receiveables if do business with these guys.
Lenders: Who’s at BB this year compared to years past?
Lots of changes. Many here in early years, not even in existence today.
“One thing for sure, change in banking is constant.” What does this mean to those at Barnes Buchanan today? Pay attentioin to a five C’s: character, collateral, cash flow, conditions…there was one more, but the one Polk wanted to talk about is conditions.
Conditions in this industry. “The tailwinds are exceptional.” The security market is “extremely complex, driven by many forces.” Increasingly, the lines blur between what’s defense and what’s security. As an example, Northrup Grumman moved its HQ to Wash DC, they’re redefining themselves as security company.
An interesting survey in Foreign Policy magazine of Top 100 global thinkers: what will be 2010 global game changers be? “If you look at what some said…92 percent of answers have at their core a security threat. So, at high level have awful lot of loft and tailwind with us.”
Some conclusions
Strong strategic and financial interest in sector.
Sector perceived as safe harbor in the storm.
Industry credits remain sound.
Certain subsector of security are populated with experienced lenders still in the market for new loans.
Tailwinds continue to drive most security sectors
Credit is relatively more expensive and restrictive compared to mid-decade, but terms more favorable.
Transaction economics are getting much more favorable and buyers to step back into the maarket.. Specialty lenders remain willing to advance at levels perceived to be highly risky by generalist lenders.
After the two-day TechSec Conference held here in Delray Beach, I’m heading up to Palm Beach today for the Barnes Buchanan Conference.
And while TechSec had its share of rock stars–I think many would nominate Frank Yeh (Yeah!) our keynote speaker for one. There will be more at Barnes Buchanan today.
First we’ll have CapitalSource’s Professor Bill Polk who will provide warm-up for the conference with an overview of the financial markets. People I’ve talked to are eagerly awaiting the follow-up to his “Evil Persists (and the security industry does just fine as a result)” talk at the ‘09 conference.
And, from the interesting tidbits department, did you know that Rich Perry, CEO of Security Networks, and Security Systems News advisory board member, who will participate in a company presentation roundtable at Barnes Buchanan today, spent some time as an aspiring rock guitarist?
The rock guitarist I refer to, however, is Jeff Baxter. He’s now a defense security guy—a DOD consultant with a high-level security clearance in the Pentagon, advising top military and civilian groups on biological warfare, next-generation technology and unconventional strategies. Back in the day, he was better known as Jeff Skunk Baxter, who played guitar with Steely Dan among others.
Take a listen. According to You Tube: “A rare Steely Dan performance from old grey whistle test (this episode broadcast-1978;performance is early 70’s)-Reelin’ In The Years.Jeff Skunk Baxter on lead guitar.”
This just in: Ron Rothman, who’s been president of Honeywell Security & Communications since 2002, will replace Ben Cornett as president of Honeywell Security Group. Rothman began his career with ADEMCO in the 1980s.
Ron Rothman is the new president of Honeywell Security Group
In his new role, Rothman will report to Roger Fradin, president and CEO of Automation and Control Solutions.
“Ron is a highly accomplished industry leader with many years of experience building our security business, growing new and long-term customer relationships, and bringing product innovations to market,” said Fradin in a prepared statement. “Under Ron, our stable industry leadership, superior customer service, brand recognition and new product pipeline will continue to position Honeywell as a strong industry leader.”
Cornett has served as president of Honeywell Security Group since 2002. He will now serves as chairman of the security business and will assist with the transition until his retirement in March 2011.
“I want to thank Ben for his 15 years of business leadership where he accelerated our global expansion, established strong customer relationships, and founded our highly successful Partner of Choice program,” Fradin said in a prepared statement. “Ben had been instrumental in building this leading business committed to our customers’ success and had been repeatedly recognized with coveted industry accolades for his lasting contributions.”
I’ve got a call into Honeywell to see if I can talk to Rothman, and also to see who’ll replace him at Honeywell Security and Communications.
And I just heard back from Jim Green at Honeywell who said that Rothman will “serve as the interim leader of Honeywell Security & Communications until a successor is announced.”
One of my favorite readers sent Sam a link to this gem. It’s from a column in a publication called The Consumerist. The Consumerist helps out consumers with problems.
This consumer has a security problem: He bought a new house with an existing Protection One security system, but he doesn’t have the code. He doesn’t want to pay for Pro One to monitor his home, he just wants to arm and disarm the system. What to do?
Easy. This reader says just find yourself a rogue installer.
If you are willing to pay a few dollars, hang around a local alarm installers business and just ask one of the service guys (while outside) if he does any “side-jobs.” It’s pretty likely that he might help you out for $25 or so
Think you’ll feel weird hanging around your local alarm installer’s business? It’ll cost you a little more, but there are other ways to find a rogue installer:
There are plenty of ex-alarm company employees and other alarm companies. Get a different alarm company to do it or put an ad in Craigslist and pay one $50 or $100 to reset the alarm if information on how to do it isn’t available on the internet on some forum somewhere.
This reader can relate, and has some observations about different alarm companies:
Exact same thing happened to me. It’s a Brinks system, but I’m definitely not going to sign up with them. Their alarm systems apparently only work if its a white guy breaking in anyway (have you ever seen their commercials? - ALWAYS a white male).
And for busting the code:
They can probably google some info about the control panel for the system to find out how to reset the whole thing, or possibly even try some numbers associated with the house or the alarm company. I wanted to add a second panel in our bedroom at home without paying the original installer, so I looked them up, and tried numbers form their phone number, address, etc. Took me about 3 tries to get the master code. Kind of scary, really. :\
People often use their BIRTHDAYS (month, year) as the code - look at your closing docs, see if you can figure out the birthday of either the husband/wife you purchased from.
I found this: http://tinyurl.com/ylkbb6o
hope it helps. If not, find out the model number and search google for “resetting alarm code MODEL_NUM” you may want to insert manufacturer as well.
And if all else fails:
Contact your state attorney general’s off and see if they can be charged with extortion
This is something readers of The Consumerist care about, 165 people commented. Here’s the whole story.
Yesterday, IMS came out with a report saying that the combination of ADT and Broadview Security would give ADT more than 50 percent of market share. They’ve changed their tune today. It seems that IMS was only measure companies that do their own monitoring…and you and I know that there are a lot of alarm companies out there who don’t do their own monitoring.
In response to comment in yesterday’s blog, I noted that Tyco (ADT’s parent company) CEO Ed Breen, in an investor call yesterday, estimated ADT’s market share at 20-22 and Broadview’s at “about one-fifth of ours.”
Backing up Breen’s numbers, are estimates I have from the Barnes Buchanan conference for the past few years. Mike Barnes, in Feb. 2009, estimated ADT’s market share at 23.7 percent and Broadview at 4.4 percent.
Yesterday I asked IMS how they came up with their numbers, and today, I got this response in an email from Alastair Hayfield
The quoted percentage figure comes from our 2008 North American Remote Monitoring Service report and some new information based on interviews for the 2010 update. The 2008 report included revenues from alarm companies who monitor their own accounts such as ADT and Broadview. The 2008 report defined and measured the remote monitoring services market for all companies owning and operating a central monitoring station….We have updated the market definition for the 2010 edition of this report to capture the revenues generated by independent alarm installation companies who do not own their own central stations. Using this new definition, the combined market share of ADT/Broadview is in the range 30-35% - this agrees with the statements made by ADT’s senior execs.
Guess the market likes the deal Tyco announced last night to acquire Broadview Security (formerly Brink’s Home Security) and combine it with its own mammoth home security company ADT.
The stock hit a 52-week high today. Here’s a little blurb on it.
Brink’s Home Security Holdings, Inc (NYSE:CFL) soared 31.60% to $41.35. Today the stock touched a new 52 week high at $41.95.
More on all this later, I’ve got to participate in a group interview with John Koch and Naren Gursahaney from ADT and Bob Allen from Broadview. I’m looking forward to talking to these guys, but do I like group interviews? No I do not.
Huge news here: Tyco, parent company of ADT, is going to buy Broadview Security, formerly Brink’s Home Security for $2B.
I’ll have much more on this soon, but for now here’s the release:
Tyco International to Acquire Broadview Security
2010-01-18 16:45 ET - News Release
Also News Release (U-TYC) TYCO INTL LTD BERMUDA
SCHAFFHAUSEN, Switzerland and IRVING, Texas, Jan. 18 /PRNewswire-FirstCall/ — Tyco International Ltd. and Brink’s Home Security Holdings, Inc. today announced a definitive agreement for Tyco to acquire Brink’s Home Security Holdings, now operating as Broadview Security. Following the closing of the transaction, Tyco intends to combine Broadview with Tyco’s ADT security business. The cash and stock transaction is valued at $42.50 per share or approximately $2.0 billion. The transaction has been unanimously approved by the board of directors of each company.
The transaction combines two of the premier companies in the North American residential and commercial security industry. Broadview Security is one of the leading monitored security companies in North America. ADT is the world’s largest electronic security provider. Tyco intends to combine the two businesses under the ADT name.
Excluding transaction and integration-related expenses, Tyco expects the transaction to become accretive to earnings before special items by approximately $0.07 in the first full year after closing, increasing to approximately $0.14 in year two. The combination is expected to result in operating synergies of approximately $150 million.
“This transaction provides us the opportunity to further strengthen our position in the residential and commercial security industry, while advancing Tyco’s overall strategy to increase its presence in its core security, fire and flow control platforms,” said Tyco Chairman and Chief Executive Officer Ed Breen. “Broadview’s strong presence in the North American security market, significant recurring revenue and attractive margins will enhance ADT’s financial performance and support our long-term growth in this large, fragmented and highly competitive industry.”
Bob Allen, President and Chief Executive Officer of Broadview said, “We are proud of all we have achieved as a company to increase our customer base, and to grow our revenue and income in a challenging economy. We view this transaction as the culmination of these efforts, providing our shareholders with an attractive premium for their shares, including cash consideration and an opportunity to participate in the future growth of Tyco International.”
“ADT and Broadview are an excellent strategic fit. We have highly complementary product and service offerings, strong sales and marketing organizations and a shared dedication to quality customer service,” said Naren Gursahaney, President of ADT Worldwide. “We expect this combination to result in an even more efficient, more successful ADT.”
Broadview Security has more than 1.3 million recurring revenue accounts throughout North America with annualized revenue of approximately $565 million. ADT has more than 7.4 million recurring revenue accounts globally and generated revenue of $7.0 billion in fiscal 2009. ADT’s North American residential and small business operation, which is the most comparable to Broadview, has 4.8 million recurring revenue accounts and revenue of $2.2 billion in fiscal 2009.
TRANSACTION TERMS
Under the terms of the agreement, for each Brink’s Home Security Holdings share, Brink’s Home Security Holdings shareholders may elect to receive: (1) $42.50 in cash, subject to proration if the elections would result in total cash consideration exceeding approximately 30% of the total merger consideration as described in further detail below; (2) a combination of $12.75 in cash and a fraction of a Tyco share equal to $29.75 divided by the volume-weighted average price of Tyco’s stock on the New York Stock Exchange during the 10-trading day period ending on the fourth full trading day prior to the closing date of the merger, subject to a collar between $32.97 and $40.29; or (3) Tyco shares equal to $42.50 divided by the volume-weighted average price described in (2) above, subject to the same collar. The stock component of the consideration is expected to be tax-free to Brink’s Home Security shareholders. As noted above, in the event the cash consideration to be paid to Brink’s Home Security shareholders in the transaction exceeds approximately 30% of the total merger consideration, which is equal to approximately $584.5 million, plus an amount determined by multiplying $12.75 by the number of Brink’s Home Security options that are exercised prior to closing (the “Available Cash Amount”), shareholders making a cash election will receive a mix of cash and Tyco shares for their shares of Brink’s Home Security common stock in amounts that allow the overall cash consideration to be paid by Tyco to be capped at the Available Cash Amount.
The transaction is expected to close in the second half of Tyco’s fiscal year, which began on September 26, 2009. The transaction is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Act and the approval of Brink’s Home Security Holdings shareholders.
I woke up to a big, beautiful blizzard today. It came as a total surprise, at least to me. My kids usually let me know, or someone in my office or one of my sisters. (Two of my three sisters are teachers and they’re veritable meteorologists when it comes to snow day possibilities.) Maybe my usual sources failed me because the schools observe today’s holiday, Martin Luther King day. The sources weren’t paying attention.
Everyone’s working from home today, including apparently the plow guy at our office. I had to come into the office to get my computer, and trudge through a foot of snow to get to the front door. No one loves a snow day as much as me, but jeesh.
The office phones are out too, but our Internet’s working fine, so if you’re trying to get in touch with Sam, Dan or me today, email is best.
Do you think APX Alarm may be preparing for an IPO? It’s total speculation on my part, of course, but don’t you think it might make sense for them?
Why would they want to become public? I was talking to Sam about why any company would want to go public and he rattled off three reasons:
—it can be easier to raise money, because you can sell shares of a company rather than borrowing or giving up equity in the company in exchange for money from venture capital.
—For a profitable company, the transparency that comes along with going public can be a good thing because anyone can see how well they’re performing. That’ll encourage people to invest cause everyone likes a winner.
—If you’re going to make an acquisition, it gives you a second form of currency to use to pay. Instead of paying in cash, you can pay in shares. You pay, but you don’t really pay.
We all know that APX has grown like crazy and APX CEO Todd Pederson told me in an interview (in the upper right hand corner of our home page, click on “more videos” to see the interview on ssnTVnews) that APX plans to offer services to the homeowner beyond home security, and he said they’ll likely expand into commercial security at some point as well. They don’t typically do acquisitions (other than a central they acquired from CMS/Pro One), and they do currently have a whopping $415M credit facility. Still, it takes some coin to add those 150,000 accounts annually, so it’s reasonable to think that they’ll need more cash for their growth plans.
Christopher Black is APX Alarm's new CFO
What do you think? If they do decide to go public, they now have someone onboard who knows about these kinds of things. As I mentioned in a blog yesterday, APX Alarm just hired a new CFO, Christopher Black. I got a chance to talk to him yesterday.
It was only his second day on the job, so we talked about his previous jobs, rather than any plans he has for APX. (ie. there was no mention whatsoever of plans for issuing an IPO.)
However, should APX decide to go IPO, it seems like Black might be handy to have around. He’s a finance guy who worked in corporate banking for 12 years where he told me he, “handled high-growth companies, providing acquisition financing and growth capital.”
He then went to work for a customer, Wabash National, a company that had significant debt. He was part of the management team that helped recapitalize and turn that company around. Next, Black went to American Commercial Lines where he helped move the company out of bankruptcy and shepherd it thorough a “very well received initial public offering.”
