Pinnacle Sells Accounts, Infrastructure
Pinnacle Security, Orem, Utah, has been in the news lately with several sales of various assets. Signs point to the dissolution of this company. And with rumors that parent company Golden Gate Capital is looking for a buyer for Devcon Security, this could mean Golden Gate is bowing out of the security industry. A spokesperson for Golden Gate Capital declined to comment.
Henry Edmonds, founder and president of The Edmonds Group, noted that Pinnacle encountered some challenges in recent years. He added that after three account sales and the acquisition of Pinnacle’s sales force, the company may soon fold. As to the acquisition rumors surrounding Devcon Security, Edmonds said, “It would seem natural if they’ve chosen to exit the Pinnacle transaction that they would choose to exit the Devcon transaction as well.”
Back in October, 2012, Monitronics, Dallas, announced an initial purchase of 93,000 accounts from Pinnacle that would begin an ongoing partnership. Pinnacle would function as the sales generating partner and Monitronics would take over those accounts. That initial account acquisition added $4.4 million of gross recurring monthly revenue for Monitronics, with a price tag of $131 million. According to Monitronics, those accounts had approximately 75 percent penetration of interactive services.
At that time, Jared Chappell, president and founder of Pinnacle Security, said, “With this relationship, Pinnacle is increasing its operating flexibility and significantly lowering its debt load. At a time when competitors are taking on additional risk and increasing their debt, this improved capital position represents the best direction for Pinnacle and allows the company to pursue significant new growth opportunities.”
However, in January, 2013, Protection 1, Chicago, announced it had acquired proprietary IT infrastructure and software from Pinnacle Security as well as its Orem, Utah facility and personnel.
“Pinnacle has invested a significant amount of time and money in their customer relationship management system; in fact, it earned the 2012 Best Practice Award at the Electronic Security Integrators (ESI) Forum for its Dashboard and MySales Websites,” Tim Whall, chief executive officer of Protection 1 told SDM. “The CRM system provides real-time data to sales and installation information, as well as provides prospect and customer information to representatives in the field on their mobile devices, iPads, and laptops.”
Whall added that this system will help Protection 1 gain market share in its current markets. Jared Chappell and Steve Zolman will be joining the Protection 1 management team and leading a new residential division at Protection 1 which will focus on personalized, one-to-one selling of home security products and services.
“Similar to other traditional sales models, Protection 1’s sales teams do a variety of activities in the field, including some door-to-door selling,” Whall explained. “With an established base of customers in our locations, our representatives spend a significant amount of time leveraging referrals, lead flow and appointments from our marketing efforts as well as selling to existing customers. The additional sales channel will primarily be focused on door-to-door selling. The goal of both channels is to provide an in-home, face-to-face experience for the security buyer. We still believe, particularly for new security buyers, that having someone provide a walk through evaluation and explain new technology to you creates a positive customer experience.
In response to the bad reputation some companies have gained by using a summer sales model, he added, “I think it’s important to note that there is a misconception that the “summer sales” model is simply a ‘bunch of college kids hitting the streets.’ In getting to know the teams out in Utah and their business model, we see the majority of people involved in selling and installing have made this their career, returning year after year post graduation and desiring to make this an opportunity for life. These are college-educated employees that have been brought up in a culture of discipline and hard work —characteristics that make them valuable employees to any organization.”
At the time of Protection 1’s acquisition, Whall noted that “Pinnacle still exists as a separate entity not associated with Protection 1.”
Finally, in February, 2013, SAFE Security, San Ramon, Calif., acquired 24,000 subscriber accounts from Pinnacle, representing $1.1 million of RMR.
“This is an exciting and important addition to SAFE’s portfolio,” stated Paul Sargenti, SAFE’s president and CEO who founded the company in 1988. “The transaction fits very nicely into our national footprint. The acquisition, in conjunction with SAFE’s robust dealer program, provides cash flow to optimize and execute SAFE’s growth strategy.”
Edmonds noted that Pinnacle may have found a third buyer of accounts in ADT, though neither company has made a public announcement. He added, "I believe what they doing is an orderly sale of different parts of the business to maximize value. Once they sell the remaining accounts, I think they will wind down the remaining operations, which there won’t be much of: once you’ve sold your customers and transitioned your sales force, there isn’t a lot left to do."
Splitting a single business into parts in order to sell it isn't all that common in the security industry, but may be the right strategy under certain conditions, Edmonds said. Those conditions might include concern over future litigation, as Pinnacle had recently been fined by the Illinois Department of Financial and Professional Regulation.
“Different people might disagree on whether that was the best strategy,” Edmonds commented. “I think the reason they took that path is they might have felt the pieces were worth more than the whole. As we’ve seen, there were a variety of different buyers who were interested in different assets.”