Relying solely on custom home alarms with no mass marketing will lead the industry to “anemic growth,” said Mike Barnes, Barnes Associates (center). Barnes is flanked by Debra Riefner, National City Bank, and Bryan Lawrence, Buchanan Ingersoll.

Dennis Stern, co-chair of Buchanan Ingersoll’s Security Alarm Group, (left) recommended focus on acquiring commercial accounts, and Ron Perlman, head of the firm’s Government Contracts practice, reported on the Safety Act.

“There’s been a reset for the entire industry,” said David Robinson, president of ADT’s parent Tyco Fire & Security. Costs to acquire home alarm accounts “were far too high,” and the program that recruited independent dealers to install ADT’s home alarms proved “not economically viable in certain markets” for the market leader.

“On an economic model basis it didn’t make sense,” said Robinson, who joined Tyco last year. “It was overaggressive.”

Now ADT has focused its growth strategy to require higher customer credit scores, higher installation fees, external financing sources, and a more selective dealer program.

“Our dealer program spending is down 70% now versus 2002,” said Robinson.

ADT’s former vice president of acquisitions and corporate development, Dennis Stern, now co-chairs Buchanan Ingersoll’s Security Alarm Group. “The mass market was a worthwhile way to generate RMR, but a very high cancellation rate came into that,” he said. “If you were a long-term player, that was not the way to grow your company.”

Now Stern points to concern about the September 11 attacks and bills pending in Congress that “will increase the focus on security spending and security procedures on the business campus.”

As senior vice president in Lehman Brothers’ Business & Professional Services Group, Greg Bortz aided the sale of Edison Select to ADT and divestiture of Protection One’s Mobile Services Group.

“This is an industry that has destroyed a tremendous amount of shareholder value,” he said. “Financial markets provided alarm companies with financing“ without proper constraints. Bortz named “zero down” sales and low credit scores as prime culprits. “It was more important to grow.”

“The industry has been in fix-it mode for a while now,” Bortz said, “Greater opportunities lie ahead in a much healthier, more sustainable environment.”

Sean Forrest, senior vice president and division head at LaSalle National Bank, has been lending to alarm companies since 1995. Despite some problem loans, he said the industry has avoided washouts and found ways to retain residential accounts. “Attrition can be managed if companies are focused on quality and service,” Forrest said.

Active in more than 200 security alarm acquisitions, Mike Barnes of Barnes Associates is convinced that mass marketing still has a future. “Is mass marketing a failed model? No,” Barnes said. “It’s clearly in disfavor right now,” Barnes said, but “the industry has proven it’s a valid way to increase penetration rates in Middle America. It’s probably the only way. If the industry relies on custom (design for security systems) it will be in for anemic growth,” he warned.

“Absolutely, you have to have increased sophistication and effort in attrition management and tracking in order to raise capital and make money,” Barnes said.

”Sometime in the next five years, we’ll be back to giving systems away.” And he added, “If it’s done properly, the dealer program model works.”