In past years, the end of a calendar year signaled “acquisitions season.” As the year ends and companies endeavor to take advantage of much needed tax breaks, the industry typically is flooded with news of mergers and acquisitions (M&A). In recent recession years, this seemed an indication of the security industry’s resilience and ability to thrive while other industries faltered. However, 2011 seemed quieter than others and we set out to find out why, while the industry continues to do well, merger and acquisition activity is down.
SDM spoke with Ron Davis, president of the Davis Group and Mike Barnes, principal broker and owner of Barnes Associates. Both had different perspectives on the reasons behind a slow year for M&A. But a possible conclusion points to a combination of global economic and industry-specific conditions that led to a smaller set of eligible sellers with high expectations and solid, yet cautious, buyers.
We’re not the only ones who’ve noticed. “There is a lesser volume of activity this whole year than there has been in previous years,” Davis noted about 2011.
Barnes agreed, saying, “This will be a hot topic at our upcoming Barnes Buchanan Conference in February.”
According to Barnes, modest activity in 2011 was put into high contrast against 2010. “A combination of factors resulted in a surge of activity in 2010, not the least of which was the strong performance realized by the industry during the recession. The buy side of the market remains strong. Large, well-capitalized existing players and private equity are constantly looking for good opportunities. There are also a number of strategic buyers looking at the industry.”
In spite of signs that the buyer side continues to be healthy, that flurry of activity in 2010 seems to have drained the sellers’ pool, Davis believes. “The obvious conclusion is the economic uncertainty that’s going on in the world today. But I think it’s a little more subliminal than that,” he explained. “I think the number of target acquisitions in the dealer community has dropped to an all-time low because most of the ones that were going to sell have already sold. When you look at companies that do acquisitions, they’re looking for dealers with $50,000 to $250,000 of recurring monthly revenue (RMR). And the number of companies out there that have that kind of rate has pretty much diminished.
“There has been so much activity in years past that the ones that are left are making decisions slower than they might have in the past,” Davis added.
In Barnes’ view, “The lack of activity seems to be the result of an insurmountable spread between the bid and the ask. Buyers are generally more conservative and choosey, while sellers’ expectations have risen dramatically. Without a bridging of the resulting valuation gap…deals do not get done.”
Adding to the valuation gap could be one company’s restructuring plans. “Additionally, the upcoming split of Tyco/ADT could put a chill on valuations, or at a minimum put a hard ceiling on the upper end of valuations,” Barnes acknowledged. “It is much harder to argue for a high valuation, when the dominant player in the industry is trading at a lower relative price.”
Barnes added, “In spite of these dynamics, we think activity is likely to pick up. Competitive pressures have never been higher, and while the future can look reasonably bright, it is more a contrast with the dark days of the recession, than a given. There is still much uncertainty. Potential sellers are undoubtedly thinking about the prospects of a double dip on the economy, and higher tax rates on sale proceeds.”
Both Barnes and Davis seem to agree that a quiet year for M&A is just part of a cycle and response to temporary factors, and not a permanent trend in the security industry. Barnes commented, “To us, it feels like the market is simply catching its breath… and, that activity will likely increase in 2012.”
Davis believes the nature and size of acquisitions may change slightly in 2012, but that activity will pick up. “There are always going to be enough sellers to make a market,” he said. “I don’t think it’s going to continue to diminish. There will be fewer sellers and larger transactions. I think you’ll see some companies in the SDM 100 that will be selling in the next year.”
By Sabrina Gasulla, Associate Editor.
Honeywell reached an exclusive agreement with Toll Brothers, an American luxury homebuilder, to provide its broad portfolio of security technology for most of its newly constructed homes. Toll Brothers, currently building in 19 states, offers security systems in most of its new homes. The company will include Honeywell’s widely used VISTA alarm panels, and will offer its line of alarm radios and Total Connect™ 2.0 technology, which allows homeowners to remotely monitor and control their security systems with mobile devices such as smartphones and tablets.
In recent years, Honeywell’s home security portfolio has focused on creating “the connected home.” Technologies such as VISTA and Total Connect have been designed to keep people connected with their homes at all times.
Tyco International Ltd. completed the acquisition of Visonic Ltd., a global developer and manufacturer of electronic security systems and components, for approximately $100 million in cash. The acquisition was first announced on Sept. 15, 2011.
The Visonic business, which has annualized revenues of more $75 million, will be integrated into Tyco’s Security Products unit. Visonic’s portfolio includes wireless communications technologies that offer increased range and secure communications. These technologies are in use in more than a million wireless installations around the world.
“The addition of Visonic to the Tyco Security Products portfolio advances our strategy to provide our global customer base with broad-based, best in class security solutions,” said Mark VanDover, president of Tyco Security Products. “The company’s technological capabilities and strong presence in markets such as Europe enable us to further enhance the solutions and reach of our intrusion security portfolio.”
Honeywell, Melville, N.Y., confirmed that JoAnna Sohovich decided to leave the company to pursue other opportunities. Sohovich was named president of Honeywell Security & Communications in August 2010 after holding several executive positions in various Honeywell businesses. Scott Harkins was appointed to replace Sohovich and lead Honeywell Security Group’s (HSG) products businesses in the Americas.
“Scott is a respected leader and his presence brings a continuity that will help keep Honeywell focused on its primary objective — developing and delivering high-quality security technology for our customers,” HSG President Ron Rothman said. “Scott has broad experience in every facet of security — from intrusion to video to access control, and that will help us to further deliver on the real potential of systems integration.”
Harkins joined Honeywell in 1995. For the past three years, he has overseen the company’s video surveillance and access control divisions. Under his direction, Honeywell also built a complete entry-level-to-enterprise-system portfolio of video and access solutions.
In his new role, Harkins will also manage Honeywell’s intrusion portfolio, which includes ADEMCO security systems, AlarmNet radio communications, Total Connect™ remote services and the First Alert Professional dealer program.
Security industry veteran, John William Mabry, Jr. tragically died on Nov. 18, 2011 in a car accident. John was en route to Atlanta from his home in Jacksonville, Fla. to visit his grandchildren.
In 1969, John founded the American Alarm Company, which he sold to Honeywell Inc. in 1983.
John served as vice president of Honeywell’s Protection Services Division and later vice president of Sales and Business Development within Honeywell’s $3.4 billion Home and Building Control business unit.
Mabry will be remembered for his outgoing personality, wry wit, high integrity, patriotism and strong dedication to family and friends. Read the full article.
Realizing the crucial new evolution of the industry, with so many technology choices, expanding client demand across a diversity of systems, increased competitive pressure, and a sliver of silver in the housing market clouds, Indianapolis-based Custom Electronic Design & Installation Association (CEDIA) has elected and appointed a 2012 volunteer executive committee and board of directors.
The volunteer leadership guides the association’s strategic initiatives. Two directors were voted in by CEDIA members and one director was appointed by the current board. The term runs Jan. 1, 2012 to Dec. 31, 2013.
The Executive Committee — Chairman: Federico Bausone, Multisistemas BVC Sa de Cv, San Pedro Garza García, Nuevo León, Mexico. Vice Chairman: Larry Pexton, Triad Speakers, Portland, Ore. Secretary: Buzz Delano, Delano Associates, San Clemente, Calif. Treasurer: Gordon van Zuiden, cyberManor, Los Gatos, Calif. Immediate Past Chairman: Randy Stearns, Engineered Environments, Alameda, Calif. Directors: Michael Creeden, M&R Digital Innovations Inc., Spring Grove, Ill.; Dennis Erskine, Epic Home Cinema, Marietta, Ga.; Mark Hoffenberg (new), AudioVisions, Ladera Ranch, Calif.; Richard Millson (new), Millson Technologies Inc., Vancouver, B.C., Canada; Seth Rubenstein (new), Ihiji Inc., Symrna, Ga., Peter Shipp, ZIO Group, LLC, Winter Park, Fla; Bill Skaer, Eric Grundelman’s Cool AV ~FM~, Mesquite, Texas; John Stiernberg, Stiernberg Consulting, Sherman Oaks, Calif.
Stanley Convergent Security Solutions (Stanley CSS), Naperville, Ill., purchased all the operating assets of AlarmCap, operating under the brand Microtec Security Systems, an alarm company headquartered in Saint-Augustin-de-Desmaures, Quebec with operations in, Alberta, Ontario, British Columbia, Manitoba, Nova Scotia and Quebec, Canada. With this acquisition, Stanley CSS acquired not only the reported fourth largest alarm company in Canada, but also a talented team of associates and leaders, the company said.
Stanley CSS named Robert Branchaud to lead its Eastern Canada district, comprised of the combined Stanley CSS and Microtec businesses. With more than 30 years of experience in the industry, Branchaud founded three security companies, the most recent of which he sold the majority of interest into Microtec Enterprises, Inc. in 2000. Active in the Canadian security industry, Branchaud previously served as president of the Canadian Security Association (CANASA) for the Quebec division.
March Networks®, Ottawa, Ontario, a global provider of intelligent IP video solutions, announced that it entered into a definitive agreement with Infinova (Canada) Ltd. and Shenzhen Infinova Ltd., Monmouth Junction, N.J. Per the agreement, Infinova will acquire all shares of March Networks Corp. for C$5.00 per share in cash. The total value of the transaction is approximately C$90.1 million.
“The combined companies create one of the 10 largest global players in the video surveillance industry and is well positioned for the expected industry consolidation over the next five years. Infinova offers March Networks a broader geographic footprint, access to the world’s fastest growing market and a complementary fit with our respective product lines,” said Peter Strom, president and chief executive officer, March Networks.
Security-Net, Exton, Pa., a global provider of security integration services, announced it elected Joe Liguori as president of its board of directors for the next two years. He replaced Tom Asp who has been president since 2009.
“As the new president of the Security-Net Board of Directors, my priorities will be to strengthen our national account relationships with vendors,” said Liguori. “I also look forward to supporting Security-Net’s growth on the national level, where we are currently providing systems integration services to a number of large corporations, financial institutions and Fortune 500 companies.”
Security-Net members also elected Jim Coleman, president of Operational Security Systems in Atlanta, Ga., as vice president. Paul Janik, president of MidCo Inc. in Burr Ridge, Ill., continues as secretary of Security-Net’s board of directors, a post he has held since 2009. Skip Sampson, vice president of Koorsen Security Technology in Indianapolis, Ind., was elected to a two-year term as treasurer. Sampson has also held this position since 2009.
Security-Net is currently comprised of 19 independent systems integrators located throughout North America, plus four systems integrators internationally.
The U.S. government gave the Electronic Security Association (ESA), Irving, Texas, a choice seat at the table for establishing the direction of Homeland Security as it involves the nation’s emergency service industry.
ESA became a member of the Emergency Services Sector Coordinating Council (ESSCC), which was created by the Department of Homeland Security in 2004 as a vehicle for coordinating the actions and capabilities of the Emergency Services Sector. This includes law enforcement, fire service, search and rescue, medical personnel and other first responders.
ESA’s role will be to represent the leadership of the electronic life safety and security industry within the council, providing general direction to the group and working with other participating members. John Chwat, director of government relations for ESA, will be the association’s representative on the council, and ESA executive director Merlin Guilbeau will serve as the alternate.
The ESS is a primary “protector” for other Critical Infrastructure and Key Resources (CIKR) sectors.
Other ESSCC members include the Central Station Alarm Association, National Association of State Fire Marshals, International Association of Chiefs of Police, International Association of Emergency Managers, and a number of other high-profile associations. For information, visit www.ESAweb.org.
DIGIOP Inc., Indianapolis, added Anna Belau as channel marketing manager, responsible for developing the company’s distribution business, supporting DIGIOP’s North and Latin American channel programs, and leading sales and reseller empowerment initiatives. Belau has served in the security industry since 2004.
Paxton Access Inc., Orlando, Fla., appointed Devon Felise as its new northeast regional sales manager. Devon works with the independent manufacturer representatives, distributors and integrator partners on the advantages of using the products from Paxton Access.
Vector Security Inc., Pittsburgh, hired Art Miller as vice president of marketing. He is responsible for corporate-wide marketing to further build upon the established brand and heritage of this leading electronic security company. Miller has more than 25 years of strategic marketing and marketing communications experience.