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Pinnacle sells 93,000 accounts to Monitronics

Pinnacle sells 93,000 accounts to Monitronics Pinnacle says the $131 million transaction reduces debt, putting it in a better growth position

OREM, Utah—Pinnacle Security, a leading summer-sales-model company based here, recently announced an alliance with Monitronics International in which Pinnacle has sold Monitronics about 93,000 accounts and made an agreement for future account sales. The accounts represent $4.4 million of gross RMR, according to a news release.

According to Pinnacle, the $131 million transaction, which closed last week, “reduces debt and accelerates sales and marketing initiatives.”

The accounts sold were less than half the company's total account base, Jared Chappell, president and founder of 11-year-old Pinnacle, told Security Systems News in an email interview. He said that the new alliance “creates for Pinnacle a contractual relationship with Monitronics to sell accounts for 2013-2014 as well as provide ongoing service for new Pinnacle customers.”

And while Chappell didn't provide specifics about Pinnacle's finances, he told SSN that “the proceeds from the transaction are being used to pay off a substantial percentage of our debt.”

He continued: “We believe the high levels of debt that have become a badge of honor for many companies throughout this industry � over time will prove to be destructive. Paying down our debt will place us in a much stronger financial position and allow us to increase opportunities for expansion.”

Chappell also spoke about the Monitronics deal in an Oct. 26 news release from Pinnacle. “Pinnacle has found incredible success generating industry-leading volumes of high-quality accounts even in a challenging economy,” he said. “� We are pleased to join arms with Monitronics, a top-notch, strong and fast-growing security company.”

Pinnacle said in the release that “the agreement will enable growth for both companies, with Pinnacle as a proven, powerful sales engine and Monitronics servicing the new accounts. The agreement to purchase some existing accounts is unique from most account transactions as there is no residual service obligation, no holdback and no account guarantees. These are all built into a 33x net multiple.”

Ascent Capital Group, which owns Dallas-based Monitronics, issued a news release quoting Monitronics CEO and President Mike Haislip on the deal: “We are pleased to have completed this significant transaction that will serve to drive strong growth in revenue, adjusted EBITDA and RMR. We can integrate these accounts with significant operating leverage, which will provide strong incremental cash flow. The quality of the acquired accounts and the high rate of interactive service penetration also make these an attractive addition to our portfolio. Further, as part of the transaction, Monitronics and Pinnacle have established a continuing relationship which should augment our ongoing account creation for several years to come.”

Ascent also said in its news release that “Monitronics used its existing revolving credit facility and issued $30 million of incremental term B debt to fund the acquisition. The company expects to refinance the revolver through a new senior secured term B offering.”

Ascent said the accounts it bought were recently created and “have approximately 75 percent penetration of interactive services.” Ascent said Pinnacle “is not responsible for post-acquisition attrition or service.”

Chappell told SSN that benefits Pinnacle because “under this deal, Pinnacle has no ongoing obligations to these customers. This will allow us to focus on expanding our strategic vision and development of Pinnacle's sales engine.”

Pinnacle was founded in 2001 and Chappell said that “in its infancy, Pinnacle was a Monitronics dealer.”

“Later,” he told SSN, “Pinnacle began using Monitronics on a contract basis to monitor Pinnacle accounts, sometimes as Pinnacle's primary monitoring provider and more recently to monitor a much smaller number of accounts. Pinnacle also completed a bulk purchase of accounts in the fall of 2010. Throughout the years Pinnacle and Monitronics have even been fierce competitors, but have continued to have open dialogue about opportunities to work together. Pinnacle has always respected and appreciated Monitronics' professionalism in the residential security industry.”

Chappell added that, “this latest purchase of 93,000 accounts is much larger than anything the companies have completed in the past.”

What will Pinnacle do with this new capital infusion?

“Our focus has been, and will continue to be, looking to expand our market footprint and financial security,” Chappell told SSN. “While Pinnacle will maintain independence, using Monitronics as a service provider for these accounts will give customers confidence that once a system is installed, the service and monitoring will be provided with an excellent organization and a proven track record of world-class customer satisfaction. Pinnacle's sales force is very excited about the new alliance and the opportunities we will have for accelerated growth in 2013.”

Pinnacle was bought in 2008 by Golden Gate Capital, a San Francisco-based private equity firm.

Golden Gate also acquired Boca Raton, Fla.-based Devcon Security in 2009. That traditional security company announced a shared services agreement with Pinnacle a year ago.


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