Security Systems News Top Stories

IMS: U.S. fire market takes a hit in 2009

Thu, 18 Mar 2010 00:00:00 CDT

AUSTIN, Texas—In a fire market that was down globally an estimated three percent in 2009, the U.S. fire market fared worse, with sales down an estimated five- to seven percent, Justin Siller, market analyst for IMS, told Security Systems News.
IMS issued a report on the state of the global fire market yesterday in which it said the fire market is not expected to recover to its pre-recession growth rates until 2012.
“The pre-recession growth rates in the Americas hovered between three- and five percent,” Siller said. “I’d think we’ll start to see growth rates running closer to that level in 2012 ... and getting stronger toward the end of that year.”
IMS looked at the sales of fire detection and suppression products around the world.
The cause of the decline was the poor economy with the “most significant contributor [in the Americas] being the decline in new construction.”
The decline may have been more pronounced in the Americas, but the fire market here has a solid foundation for future growth, Siller emphasized.
“The U.S. has some of the strongest legislation in place,” he said, pointing to the fact that comprehensive NFPA codes are routinely adopted around the country. He also noted that there have been important advancements in fire technology.
“There are better fire detection products that produce fewer false alarms and have earlier warning of fire,” Siller said, adding that the cost of new technologies continues to come down.
He highlighted the promise of “emerging technologies” such as video smoke detection, adding that Fike/axonX’s VSD product SigniFire now has UL and FM listings. Technologies such as VSD, wireless systems, aspirating smoke detectors, coupled with an inevitable construction market rebound and more comprehensive fire codes bode well for the long-term market potential of fire detection and suppression products, he said.
This market potential is further bolstered by the latest version of NFPA 72, which recommends that mass notification systems integrate with fire systems.
“This will drive more growth in certain areas of the fire market, certainly in the education vertical, but also anywhere people gather, and it could progress more into commercial buildings,” Siller said.

Equity firm buys Tri-Ed, Northern Video

Wed, 17 Mar 2010 00:00:00 CDT

Updated with quotes from Imperial Capital's John Mack, March 19.

DALLAS—Brazos Private Equity Partners, LLC, a private investment firm based here managing $1.4 billion of equity capital, announced this week the acquisition of two prominent electronic security distribution companies, Tri-Ed Distribution and Northern Video Systems. Financial terms of the transactions were not disclosed. The acquisitions are being made from Brazos Equity Fund III, which closed in September 2008 with capital commitments totaling more than $700 million.

The two companies will be combined and will operate as Tri-Northern Security Distribution, under the leadership of Tri-Ed CEO Steve Roth. Roth told Security Systems News, however, that things won’t change radically on day one.

“The near term difference is only going to be through the expanded offerings,” Roth said, as the respective product lines will be combined and offered to dealers. “The interface and the process will be exactly the same as it was yesterday in the near term,” Roth said of the buying experience.

The combination of the companies by Brazos is the culmination of talks that began in the middle of last year, Roth said.

Roth had a long relationship with John Mack, an equity investor in Tri-Ed and now co-head of the Investment Banking Group, and head of Mergers and Acquisitions for Imperial Capital. Mack helped Roth buy Tri-Ed from Tyco in 2005 and though they did attract private equity at that time, Mack said it was “not in the traditional way. It was sort of a friends and family financing, but with an established firm, Wheatley Partners, because Tri-ed had the promise to be big enough to matter at the scale of a private equity investment,” but wasn’t yet a good private equity target.

As it got to be five years later, and Tri-Ed’s revenues doubled, Roth and his team, said Mack, “got it to the size where it was at a level of interest to private investors, and they didn’t just want to sell out to a strategic and have the game be over, so we started to look at creative ways to bring in equity interest.”

Mack suggested bringing in a second company, introduced Roth to Mark and Paul Haney at Northern Video, “and that’s where the dialogue started,” Mack said. “I said, ‘Here’s an interesting opportunity to put the two of you together, and I think we can attract a really serious commitment to do something extraordinary,’ and that’s how things worked out. There was a jigsaw puzzle fit.”

As for impact on the marketplace, Bill Bozeman, CEO and president of co-op PSA Security, which does compete somewhat with both companies, said the deal would definitely have an impact. “Both companies had a significant customer base,” Bozeman said, “and you put them together and they have a more significant customer base ... and of course it’s a direct assault on ADI.”

That said, however, Bozeman thinks the encroachment on the market of IT distributor Ingram Micro could have more impact than anything anyone’s doing in the traditional security market, especially because of Ingram’s history of existing on very thin margins and on driving margin down in every market it enters. “If you look at Tri-Ed and Northern Video and add them up together, and then you take a look at Ingram Micro doing $37 billion—if they get serious, they’ll have a much bigger impact.”

Mack isn’t in agreement. “I don’t think any of them [Ingram Micro and other IT-centric distributors who’ve come into security] have demonstrated a dedication to the full spectrum of products you need to have to be serious about physical security. They’re dancing around the edges.”

Roth said this isn’t just about creating size or competition, anyway. “Consolidation for consolidation’s sake isn’t the best way to go for anyone. You have to find two companies to go together and have one plus one equal more than two, and we saw that with Northern.”

Specifically, Roth said there is very little competition or overlap between the two companies. Tri-Ed has 38 branch offices; Northern Video has three. Tri-Ed is well known for its service in those branch offices; Northern is known for having one of the best inside-sales operations in the business. Tri-Ed’s offerings lend themselves more toward the alarm and access worlds; Northern brings obvious video capabilities and products.

“They bring a tremendous expertise in the video area,” Roth said, “and a customer base that buys much more than video, so Northern can now provide a suite of products that extends well beyond what they have ... Tri-Ed takes our current method of operation and the ability to really develop the video offering and create a bigger and broader situation with the fastest growing segment of the market, which is video.”

Roth seemed to marvel at how good the fit actually is: “It’s a totally complementary business structure on both sides. There are no branch conflicts. There’s no worry about, ‘who’s the surviving branch,’ in some areas. Both employee bases, they’re rooting for each other on day one.”

Bozeman agreed that, “if you look at it from 30,000 feet, it makes a lot of sense. Northern is strong in video, and Tri-Ed is more in the burglar alarm space, and you’re now stretching out both product lines.” However, he said, “I think it’s going to be difficult to merge the two cultures,” the one focused on inside sales, the other on branch locations.

Mack said culture was an important part of the deal, actually. “We never would have done the deal without a complementary culture,” he said. “The Tri-Northern guys can now take some of the cost out to get the pricing really low, and if you can wait a few days a lot of the traditional Tri-Ed guys will be impressed with that. And when they want to just drop by and pick a few things up at the local office, they can still do that. Instead of forcing a dealer to do his business a certain way, they’ll be able to design the best fulfillment for their businesses. I think they’ll be impressed by that.”

According to a press release, Tri-Ed and Northern will retain their organizational identity, company locations and executive leadership. The senior management at both organizations will assume leadership roles as well as equity positions in the new entity. Steve Roth will assume the role of CEO; Mark Haney will serve as president; Pat Comunale as COO; Paul Haney as executive vice president; and Brian James and James Rothstein as senior vice presidents.

S2 now available on Mercury panels

Tue, 16 Mar 2010 00:00:00 CDT

FRAMINGHAM, Mass.—S2 Security, an IP-based access control manufacturer, announced today its software now integrates with Mercury Security access control panels, those used by the likes of Lenel, RS2 and others on an OEM basis. This is the first time the S2 system can be installed without S2 hardware.
“My strategy has always been,” said S2 founder and CEO John Moss, “to enter a market that we’re entering for the first time, or with a first offering, with a product that won’t directly challenge the biggest established players. If you go after them, you get steamrolled ... So we started by introducing a low-end to mid-range system with the Netbox, and then grew it into Enterprise, and when we introduced it, it was 100 percent web-based, 100 percent network connected, and the mid-range product was solid state, so there were a bunch of new advantages that occurred as a result of the sea change in 2001/2002 when all this technology became available.”
Once IP became more widely accepted, “integrators and end users began to say to us that it would be great if we could port our software onto Mercury products, since they had such a big investment in that already, and that’s what drove this.”
However, Moss doesn’t intend to build his business off stealing other companies’ accounts. “I don’t like that business model,” he said. “It’s not a scalable business model to just wait for the other guy to screw up.”
Open Options is another company that has based itself on the Mercury panel since its inception in 1998. Director of marketing and communications Brent Doherty said, “we do benefit from unhappy customers of other manufacturers, but our core business is just new sales and putting new Mercury panels out there. But that’s the beauty of open architecture: If someone isn’t happy with their software, including us, there are options out there for changing without losing your hardware.”
Mercury CTO and founder Frank Gasztonyi said it’s important that those people who want the web-based, IP-focused model have a Mercury-based option. “There’s not a universal acceptance or demand for IP-based systems, but there are some sectors that are very eager to consume it,” he said. “I think IT-based deployments are going to be increasing, but not in extremely rapid fashion. At this point, it’s not a significant part of our sales.”
However, for those that want IP, they can’t be dissuaded. “Our integrators demanded that we have an IP option,” he said, “because they were losing some jobs because the customers they were approaching were looking for it. Maybe two years from now the market will understand it more, but the foundation of the traditional access control architecture is sound. I don’t see that going away.”
Doherty was more bullish on the IP conversion: “We’re starting to see a lot more interest in IP-based systems,” said Doherty, “the PoE, the everything IP to the door. I think we see very little of the traditional hardwiring all the way back to the computer. Maybe it’s just the panels on the network and it’s hardwired to the door, but we’re seeing it growing. A lot of people are interested in that.”

Henry Bros. struggles through 2009, but sees light on horizon for 2010

Tue, 16 Mar 2010 00:00:00 CDT

FAIR LAWN, N.J.—Two-thousand-eight was a banner year for Henry Bros. Electronics. The company turned a profit for the first time in years, grew its revenues eight percent, and was ranked 32 by Fortune Magazine on its list of the fastest growing small public companies.
Emboldened by 2008’s performance, CFO John Hopkins provided guidance to investors for growth of as much as 29 percent, to near $80 million.
However, 2009 was as tough on Henry Bros. as it was on many companies. By year’s end, revenues had actually shrunk by 11 percent, to $55 million, and, said CEO Jim Henry, “our business continues to suffer from a protracted recessionary climate. It’s deeper and longer than many of us expected.”
Henry does not believe the company is mortally wounded, though. “We still operate in a significant and growing field,” he said, “and while many of our peers have seen their business simply go away, ours has mostly slipped further out.”
Henry’s opinion is that the sales cycle has simply gotten longer, rather than the buys not happening at all. For evidence, he points to his backlog. “Our bookings were on par with 2008’s bookings,” he said. “Now we’re $4.3 million higher than we were at the end of 2008. Seven-point-two million didn’t flow through—those jobs were pushed farther out ... Our core business is still strong, but the cycle has doubled or tripled.”
He also points to good signs. For example, the company’s gross margin was up four tenths of a point in 2009, and the company’s emphasis on recurring revenue and service is just starting to take hold, emboldened by a new software piece the company has developed that will grow service revenue.
Saying that Henry Bros. believes a market bottom is a good time to invest, Henry also noted the company increased sales and general administration expenses by $2.2 million in 2009. “We invested in training and brought in computerized monitoring software, the Heart program, which is important as we increase the recurring revenue we capture,” he said, noting the company did about 10 percent of its revenues in service in 2009.
“The services business is becoming more intellectual rather than just alarm monitoring,” Henry said. “I do see that we’re going to increase the white collar nature of what we do in the complexity of our systems we install and the assessment of compliance with regulations that we provide.”
Because of these investments and his reading of the market, “we are comfortable in saying we’ll be profitable in 2010, and will increase our revenues over 2009,” Henry said.

Residential video centerpiece of new Texana dealer program

Thu, 11 Mar 2010 00:00:00 CST

DALLAS—Sean O’Keefe, industry veteran and CEO of Dallas-based Texana Security says he’ll spend his time at ISC West this year doing two things: checking out residential video products, and recruiting installers for his new dealer program, the centerpiece of which will be the Videofied residential video offering.
“Video is becoming one of our major plays and we think that’s the way it will be going for the next several years,” O’Keefe said.
O’Keefe just began offering the Videofied system at the end of 2009, but he said he’s very interested in “the product from the law enforcement side. Police certainly like the idea that we verify the alarm before dispatching police.” From his discussions with law enforcement, he said, “we see some consideration on their part for the potential of making those [video verified] dispatches a higher priority.”
O’Keefe said he believes this system will go a long way toward addressing the false alarm problem and will also help with the apprehension of criminals.
Not only does the video capture an image of an intruder, because it’s not an audible system, criminals are not scared off by an alarm. With these types of systems, “there have been many more apprehensions than in the past.”
Videofied CEO Keith Jentoft said he’s working with launching the product with several super-regionals including Bay Alarm, Safeguard Security in Phoenix, ASG, Per Mar, as well as national players like Stanley. For companies without their own monitoring capabilities, he’s hooking them up with existing central stations that already take Videofied. O’Keefe, however, is the first to launch a dealer program with the Videofied product.
The dealer program has been in the works for about 18 months. “We’re looking for quality dealers who are interested in a short learning curve for how to sell and install new technology. We’ll subsidize the price of the equipment and provide monitoring here,” he said.
O’Keefe “has been a fan of Videofied for a long time,” Jentoft said. “He’s got a huge perspective; he’s worked with us on the residential offering.” Noting that O’Keefe is one of the executives who helped get Brink’s Home Security off the ground in the early ’80s, Jentoft said, “Sean’s [launched new residential offerings] before and he knows how to do it well.”

Habitec grows in Michigan with Citizen buy

Thu, 4 Mar 2010 00:00:00 CST

TOLEDO, Ohio—Habitec Security, which calls itself the largest independent dealer in Ohio, this week acquired Citizen Security Systems of Carlton, Mich.
“It’s a small company in southeast Michigan that’s been in business for ten years and has a couple hundred account base,” said John Smythe, president of Habitec.
Chris Ruelle, the former president of Citizen Security, has joined Habitec as a sales consultant. Habitec is in the process of transferring all monitored alarm systems to its monitoring station here.
Habitec has about 13,000 accounts and is roughly half residential and half commercial. It has 90 employees and two branch offices, in Traverse City, Mich., and Columbus, Ohio. The company was founded by Smythe’s father, Jim Smythe, in 1972. John Smythe took over as president after his father passed away five years ago.
Smythe said the company’s made about 100 acquisitions over the years, including five since he took over.
While Habitec’s commercial business has slowed considerably in 2009, its residential business has done very well. “Our security systems installations on an annual basis was up more than 15 percent,” Smythe said. “And our cancellations stayed low.”
And for 2010? “We expect small [overall] growth again,” he said. “While the margins on commercial are thin, we’re finally starting to see some jobs close in the initial part of this year. We’ve won some bids and we weren’t the lowest bidder. They were sold, instead, on our company.”
Smythe said he’s had valued guidance over the past five years from some veteran alarm company owners who serve on his board including Mel Mahler of ADS, and John Bourque of HB Alarm. Mahler and Bourque were close friends of Smythe’s father, and they’re all Honeywell First Alert Professional dealers.
At the most recent First Alert Professional conference, Smythe gave some guidance to other FAP dealers in a seminar on Internet marketing, something he’s a big proponent of.
“We’re doing a lot more of that than we used to,” he said. Through search optimization on his site, Google ads and Google click campaigns he’s “generating way more leads than through other means ... we get five to six leads a day through the Internet marketing, which is a lot for us.”

L1 for sale?

Thu, 4 Mar 2010 00:00:00 CST

STAMFORD, Conn.—Biometric giant L-1 Identity Solutions made its potential sale official March 2, when it announced that it has hired Goldman Sachs and Stone Key partners to explore its strategic alternatives.
Why sell now? Bob LaPenta, CEO and the largest single shareholder of the company, having invested $100 million of his own money, reiterated that he’s said all along that when 2010 arrived, the company would assess its position.
Asked if there were other reasons for exploring alternatives, Jay Beaghan, managing director for Imperial Capital said, “I think Bob’s being transparent in a good way. I think he’s telling The Street what he’s doing,” Beaghan said.
Being completely straight with shareholders is not always a CEO forte, but in this case, “he’s being straightforward,” Beaghan said, noting that LaPenta is “not an insignificant shareholder.”

Beaghan has in-depth knowledge of this market and L-1 in particular. A security technology banker for 20 years, Beaghan has a specialty in identity solutions investment banking; he advised on several of L-1's transactions as the company was put together through mergers and acquisitions of companies such as Viisage, Identix and Digimarc.

The potential sale of the company was first publicly talked about during a Jan. 6 investor call. Summarizing L-1’s strategic goals and objectives for 2010, LaPenta said the company wanted to “perform on programs in backlog, win new domestic and international program and explore strategic alternatives to enhance shareholder value.”

Asked about whether a possible sale was “a board decision or a general statement” during the investor call, LaPenta said: “Those of you that are familiar with this company and the journey we’ve been on for the past three years are familiar with the fact that I always said that we wanted to build a great company and I really believe we’ve done that. I also said that as management, and that includes the Board, we have a responsibility to enhance and make sure that we’re providing value to our shareholders.”
LaPenta noted that when he began putting the company together through acquisition several years ago, “I said that when 2010 came that was a line I had drawn on the sand and 2010 is here. What that means exactly, I’ll leave to your interpretation, but I think it’s a self-explanatory statement.”
Final 2009 revenue for the company is expected to be $650 million, down from the previously anticipated range of $670-$680 million. Adjusted EBITDA is expected to be between $95 million and $97 million. L-1 expected to end 2009 with $1.3 billion backlog. It expects 2010 revenue to be $750 and $775 million and adjusted EBITDA to be $110 to $120 million.
LaPenta said the company is “highly regarded, that has franchises in a number of areas, credentialing, enrollment. We have a nice intel business and a very, very impressive biometrics business. I think our vision in putting this company together in this particular space was visionary. And I think it’s a valuable property.”
Noting that he’s invested $100 million of his own money, he added, “I don’t have any margins. And that investment does not include any options. It’s all my money. I worked hard with my team. I’m a big shareholder. And I expect that this company that we built should be valued appropriately.”
So who will buy?
“It’s textbook stuff,” said Beaghan. “A joint venture partner could come forward, an M&A partner could come forward, it could be a group,” he said.
There doesn’t seem to be any question in Beaghan’s mind that a buyer of some sort will emerge. “It’s an interesting business and it will be of interest to a number of people who come from different perspectives.”
Would the best way to enhance shareholder value be to spin off parts of the company or sell it as a whole? LaPenta refused to speculate when asked that question.

Fire merger in Massachusetts

Thu, 4 Mar 2010 00:00:00 CST

WALTHAM, Mass.—Norel Service Company announced March 1 it had acquired National Fire and Security of Shrewsbury.
“It was a natural combination that allowed us to pick up new product lines and several well-qualified employees,” said Tom Norton, president of Norel.
Terms of the deal, which was in the works for about one year, were not released.
In business since 1971, Norel installs, tests and services fire alarms, and provides testing and servicing of sprinkler systems. It has actually been a customer of NFS’ distribution services for several years.
An engineered systems distributor that’s been in business since 1996, NFS worked with electrical contractors and other service companies like Norel, Norton said. “Now we’re able to continue to sell to other electrical contractors, and service our existing customers,” while adding new product lines carried by NFS, Norton said.
Jack Nelligan, former president of NFS is now vice president of sales and training for Norel. In addition to Nelligan, the acquisition added two sales people and five technicians to the 25-person Norel staff. The NFS technicians have extensive knowledge of the systems the company distributes such as Gamewell-FCI, Siemens, Silent Knight, CooperNotification, Gentex, Space Age and Advanced Fire Systems.
“Those technicians are working with the Norel technicians to share their knowledge of different systems,” Nelligan said.
The new company expands offerings to Norel customers, Norton said, with broader technical support, more product lines, as well as expertise in access control and CCTV.

City rolls false medical alert penalties into false alarm ordinance

Thu, 4 Mar 2010 00:00:00 CST

ROCKFORD, Ill.—The fire department here has embarked on an educational campaign that could find seniors who don’t use their PERS systems properly paying hefty false alarm fines. What’s more, the Fire Department here says similar initiatives are springing up around the state of Illinois.
Rockford Fire Department Chief Bill Beaman said the false medical alarm ordinance is in response to a growing problem and follows a growing trend. “It’s happening in some of the larger cities across Illinois now … There’s a number of high rises where the occupants are elderly. And they have medical alarms in their buildings and the facilities are requiring their occupants to punch their medical alarm in the morning when they get up. And if they don’t do that, then the alarm company calls the management and the management checks on the occupant,” Beaman said. “But if it’s after-hours or weekends, then nobody’s in the building—management’s gone.” The next bullet on the protocol list is for the operator to dispatch 911. It’s these wasteful 911 dispatches—requiring a full ambulance roll with paramedic team—that the RFD hopes to curtail.
American Two-Way president and CEO Christopher Baskin, who is on the board of directors of the Medical Alert Monitoring Association, feels false medical dispatches and attendant ordinances to control them will most likely increase. “There are already many places in the country where paramedics do charge for false dispatches of paramedics. However, I believe in the years ahead that more and more municipalities will start charging for false alarms for paramedic dispatches,” Baskin said. “The PERS market has been in the past a very simple, straight-forward service, and generally two-way voice has prevented false dispatches from occurring. Now, however, with much more competition in the PERS industry and the rollout of telehealth and telemedicine service—like remote medication management and vital sign monitoring—more false dispatches will continue to occur.”
Acadian Monitoring Services vice president Blane Comeaux, who is secretary for the MAMA, feels more responsibility needs to be taken by the alarm companies involved. “The installer or contracting company is responsible for designing a solid plan of action before the alarm activates. In this case, resolving to call 911 because the subscriber does not check in at a specified time is not a solid plan of action and is a misuse of the EMS system,” Comeaux said. “Furthermore, building management needs to be the primary contact for a failure to check in by the subscriber, followed by the subscribers’ neighbors. This type of alarm should be required to be verified before dispatching and should be written into the contract and sold as such.”
Beaman was quick to note legitimate calls for help would not be penalized and that the real aim was education. “If someone just needs assistance—even getting out of a chair—they’re not charged,” he said. “If it’s a facility that’s requiring this, then they’re charged … We had one facility where we ran 16 times—false alarms—in one weekend. We’re trying to make facilities a little more accountable … It’s not about the money.”
Each subscription address will be allowed a total of four false alarms of any type—police, fire and medical—and then will be billed according to the following schedule: Fifth-eighth false alarm—$100 per false alarm; Ninth-10th false alarm—$200 per false alarm; More than 10 false alarms—$300 per false alarm. In addition, all subscribers must obtain an alarm permit through the City of Rockford Finance Department. The fine for not having a valid permit is $300.

Pivot3 closes $25m in new funding

Tue, 2 Mar 2010 00:00:00 CST

PALO ALTO, Calif.—Pivot3, purveyors of IP SAN storage offering “serverless computing,” has closed on a fourth funding round of $25 million. Perhaps more notable than the money is the round’s lead investor, Focus Ventures, which has in the past funded storage companies EqualLogic (acquired by Dell) and Isilon (IPO). Their experience in the market, said Pivot3 co-founder Lee Caswell, has already opened new doors for the company—quite literally: Some former EqualLogic employees have joined Pivot3 and opened a Tokyo office, thanks to connections made through Focus.
“It’s kind of that instant access to channels of distribution, particularly outside the United States,” said Caswell, “that can get us in and connected really fast. They don’t like debugging a product. It has to be proven in the field, mature, so that it’s just a question of applying dollars to the sales side to scale it out.”
Pivot3’s last round came in 2008, when Mesirow Financial Capital Partners led a $24 million round, but Caswell said the company is in a different place now.
Pivot3 is reporting that it tripled its revenue in 2009, doubled its sales force, and did all that without any sales outside of the United States. Further, a recent IMS Research report named Pivot3 as the market leader in the IP SAN portion of the video surveillance storage market, and predicted year over year growth for that segment of the market of 60 percent. As the company aims for an eventual IPO, Caswell said Pivot3 was able to attract funding because its current revenue and stability makes it a relatively safe bet, but the market growth and its status in that market offers investors like Focus a potential big score.
And if you’re thinking $25 million is a big number for a fourth round in the video surveillance market, you’re not wrong to wonder if there’s something to look at there. Part of the round will go toward beta testing Pivot3 solutions for other, non-surveillance markets. “Up till now, if people asked if they could use our storage for something else, we’ve said, ‘no,’” said Caswell. “We’ve focused on surveillance. But now we’re going to add some resources to open up some other opportunities, so there will be a beta through the summer time frame and then we’ll announce the market we’re going into in the fall.”