The Stanley Works, New Britain, Conn., acquired HSM Electronic Protection Services Inc., Lisle, Ill., for $545 million in cash. HSM is the fourth largest electronic security company and the second largest commercial security monitoring company in the U.S., with 50 offices across the country and approximately $200 million in annual revenue. HSM, formerly Honeywell Security Monitoring, was SDM Magazine’s 2005 Dealer of the Year.

“It’s a positive move for us,” said Tim Whall, HSM’s president and chief operating officer. “I’ve been told that [Stanley] wants to keep myself and my team on board, so this is a good thing. It’s a great company with a great name and it can be a great opportunity for growth for us,” Whall added.

The board of directors of both companies has approved the transaction, which is subject to regulatory approvals. John Lundgren, chairman and CEO of Stanley, said he expects the transaction to close in early 2007.

Lessing Gold of Mitchell Silberberg and Knupp LLP, served as special counsel in the transaction and said that the acquisition is a positive step for both sides. “Everyone thought this was a great fit and the parties agreed to a great deal. For HSM, the company built its RMR and it has been operating very profitably. There are tremendous opportunities nationally and internationally to continue to grow.”

In addition, said Gold, HSM serves as an opportunity for Stanley – which has built up the integration side of its business in the past – to grow in the monitoring and RMR side of the security business. Executives at Stanley agree.

“HSM’s high recurring revenue is very attractive to us,” Lundgren said. Though the multi-billion dollar Stanley has seen very healthy growth over the last four or five years, the company wanted to expand their reach in the industry. “If we pursued this market without acquisition it would have taken away from our other businesses. We didn’t have a high enough recurring revenue and that is what we wanted,” Lundgren explained. HSM’s recurring revenue makes up approximately 50 percent of the company’s revenue, he added.

In addition to RMR, Stanley was impressed with HSM’s market share in commercial monitoring, as well as its stable customer base and smooth operations. HSM is No. 2 in commercial monitoring market share in North America behind ADT/Tyco according to information sources from both HSM and The Stanley Works. While HSM’s main focus is on national accounts and commercial monitoring, about 20 percent of its business is in the residential market – a market that Stanley will continue, but not focus on, said Brett Bontrager, vice president, corporate business development at Stanley and recently named head of Stanley’s newly formed Convergent Security Solutions business. “We will be focusing on the commercial side of the business,” Bontrager emphasized.

“This is in line with HSM as well,” added Lundgren. “Though they offer both residential and commercial, HSM is heavily skewed toward commercial offerings.”

Stanley executives said that they would bring HSM’s management team, which includes Tim Whall, and Don Young, HSM’s chief information officer, over with the acquisition. “At this stage, we confirm that those are the two key people. Those would have been difficult, if not impossible roles to recreate. Tim Whall has tremendous experience and an extraordinarily successful track record in the industry,” said Lundgren.

The Stanley Works, estimated at $4 billion, is a worldwide supplier of industrial tools and security solutions. Stanley has made several acquisitions to help build its security platform since 2002, including Sargent & Greenleaf, Safemasters, and Frisco Bay. In conjunction with the HSM acquisition, Stanley executives announced two new business units as part of the company’s growth strategy: Mechanical Access Solutions (with about $800 million in revenue) and Convergent Security Solutions (with about $600 million in revenue). HSM will become part of Stanley’s newly formed Convergent Security Solutions business.

With the HSM acquisition behind it, Stanley will focus on integration for 2007 and beyond. “We will provide one-stop turnkey security solutions focusing on the evolving convergence of physical security and information technology,” Lundgren said.

For more information, visit www.stanley works.com or www.hsmsecurity.com.