Insider News and Business August 2013
Ascent Capital & Monitronics Talk Security Networks Acquisition
Ascent Capital Group announced that its primary operating subsidiary, Monitronics International Inc., signed an agreement to acquire Security Networks for a total transaction price of $507.5 million. That amount consists of $487.5 million of cash and 253,333 newly issued shares of Ascent Series A common stock with an agreed value of $20 million.
The resulting company would serve approximately 600 security dealers and more than 1,034,000 subscribers. SDM spoke with John Orr, senior vice president of Ascent Capital Group and Mike Meyers, chief financial officer of Ascent Capital Group and Monitronics to learn more about this deal.
Founded in 2000, Security Networks provides monitored security system services to approximately 195,000 residential and commercial customers, making it the 14th largest residential alarm monitoring company in the United States., according to data compiled for the 2013 SDM 100. Security Networks was named SDM’s Dealer of the Year Honoree for the past two consecutive years. Monitronics is ranked No. 5 in the SDM 100.
Orr commented that it was always the intent of Ascent Capital Group to grow the Monitronics business through acquisition when it purchased the company in 2010. “We’ve been pretty consistent in that message since we acquired Monitronics. Obviously we had to get through some integration issues of our own, and some refinancing issues,” Orr commented. “Now that the business is fully integrated and operating tremendously — we have a great management team in Monitronics — we’re out looking for opportunities. This is the first of what we hope will be many attractive acquisitions.”
One of the primary factors that made Security Networks the right choice for this first acquisition was how well the business is run, Orr and Meyers concurred. Orr said, “What attracted us to them frankly is that it’s a well-run company that’s got a very complimentary business model to Monitronics’ business model... We both have networks of affiliates or dealers from whom we purchase accounts. They do it very well. We do it very well. And we think the marriage of the two companies will allow us to do it even better. We do think it’s one that although it will take some time, will be smoothly integrated.”
Meyers added the integration of these two business will ideally position the company with an extensive dealer base, a strong footprint and potential for organic growth.
“Security Networks is a smaller company but was rapidly growing,” Meyers explained. “In 2012, they generated over 60,000 contracts from their dealer network. As we fold that into Monitronics, the combined company will have strong growth as a result of both networks combined.”
Before the acquisition, Monitronics had 838,000 subscribers and 370 dealers. As of June 30, 2013, Security Networks will bring 195,000 accounts and 225 dealers. Meyers noted that both companies focus primarily on residential security systems, with roughly a 95 percent residential/5 percent light commercial breakdown.
The purchase price agreement is based on Security Networks delivering $8.8 million in recurring monthly revenue (RMR) by closing in mid-August. Orr noted that should the RMR numbers deviate above or below the $8.8 million, the purchase price may be adjusted accordingly. As of June 30, 2013, Security Networks counted $8.4 in RMR (including approximately $0.1 million of wholesale monitoring). Though Orr is confident that given Security Networks’ pace of growth, the company will have the agreed-upon figure by mid-August. The transaction will be financed primarily with new debt at the Ascent and Monitronics levels, as well as an incremental amount of cash from Ascent’s balance sheet.
Meyers also said that in addition to their business model, the companies are similar in terms of their service offerings: both aggressively competing in new technology markets such as home automation and interactive services.
Security Networks’ management team may stay in place during the transition as will other company employees. Meyers commented that as the operations are moved to be concentrated in Dallas, employees will be given the choice to interview for positions and to relocate.
Ascent’s chief executive officer, William Fitzgerald, commented, “Security Networks provides many of the characteristics that originally attracted us to Monitronics, including a high-quality subscriber portfolio, a scalable business model, a very productive dealer affiliate network providing strong account growth, and attractive recurring monthly revenue.”
Richard Perry, president and CEO of Security Networks, added, “Monitronics is a well-respected company and one that has a proven track record of growth in the home security market. I am confident that this transaction is the right next step for our business, creating a compelling growth platform and offering greater value to our customers. I would like to thank Oak Hill Capital Partners for their partnership, guidance, and market acumen. Together, we’ve helped shape Security Networks into the dynamic business it is.” — By Sabrina Gasulla, Associate Editor
New Market for ACA
Alarm Capital Alliance (ACA), Newtown Square, Pa., acquired Security Communications Audio Network Corporation (SCAN), Southampton, N.Y. SCAN has been serving the Hamptons since the early 1980s, amassing more than $170,000 in recurring monthly revenue (RMR). As ACA enters this new, affluent market, they will maintain the regional branch office to allow ACA to implement its marketing and growth strategy. With this acquisition, ACA now has more than 140,000 customers nationwide.
Kratos’ New CI Contract Has Potential Value of $6.5 Million
Kratos Defense & Security Solutions Inc., San Diego, announced that its Public Safety & Security Solutions (PSS) Division recently received a critical infrastructure security contract with total potential value of $6.5 million for a security system deployment by a public school system located in the United States.
Under the new contract award, Kratos will design, engineer, deploy and integrate into command and control infrastructure a specialized security system tailored specifically to this customer’s unique security requirements. The security system to be deployed will include video surveillance, video analytics, access control and other security-related assets. Kratos has already received initial funding of approximately $3.3 million under the contract award. Due to the nature of this security system deployment, customer related and other considerations, no additional information will be provided related to this contract award, the company stated.
Ben Goodwin, president of Kratos PSS commented, “Our entire organization is excited about this recent public school security system contract award. We take great pride in protecting some of our country’s most valuable and important assets, our educational facilities, faculty and students.”
Kratos Defense & Security Solutions Inc. ranks as No. 7 on SDM’s just-released 2013 Top Systems Integrators Report. Visit www.KratosDefense.com.
ESA Experts Create New Guidelines for School Security Programs
The Electronic Security Association (ESA), Irving, Texas, recently completed the ESA Electronic Security Guidelines for Schools, a resource for school officials that are considering adding electronic security systems to a new or existing school security program. The Guidelines, published on June 18 and presented at the 2013 Electronic Security Expo, are now available for free public download on www.ESAweb.org.
The Guidelines provide an in-depth look at the various components that lead to an effective school security program. It is intended to give school officials an understanding of the steps necessary for creating a security solution including overall security planning, assessment of threats, procurement types, contractor selection, how systems affect schools, equipment types, and system use. The Guidelines also illustrate the importance of community involvement and communication between schools and local responders.
The Guidelines are the consensus of a voluntary panel of security industry experts that collectively have extensive and diverse experience in securing K-12 schools. The panel was led by David Koenig; an industry advisor, treasurer of ESA and partner of Capital Fire and Security in Madison, Wis.
Ingersoll Rand Spinoff Moves Forward With New Name & Leadership
Ingersoll-Rand plc announced that Allegion plc filed a Form 10 Registration Statement with the U.S. Securities & Exchange Commission in connection with Ingersoll Rand’s previously announced plan to spin off its commercial and residential security businesses. Ingersoll Rand expects the spinoff, which is intended to be tax free to shareholders, to occur prior to year-end.
Allegion is the name of the new $2.05 billion security company. The name represents the collaborative, long-term relationships the company forges with customers. It embodies the company’s team of experts and their relentless commitment to safeguarding people and property, the company stated.
Earlier this year, Patrick Shannon, vice president and treasurer for Ingersoll Rand, was named senior vice president and chief financial officer; and Barbara Santoro, vice president of corporate governance and secretary of Ingersoll Rand, was named senior vice president, general counsel and secretary for Allegion. Allegion’s CEO will be David Petratis.
Ingersoll Rand also announced five directors who are committed to serve on Allegion’s board in addition to its CEO. They are:
David Burritt, former vice president and chief financial officer of Caterpillar Inc., who will chair the Audit Committee.
Michael Chesser, former chairman and CEO of Great Plains Energy Inc., who will chair the Compensation Committee.
Carla Cico, former CEO of Rivoli S.p.A. and Ambrosetti Consulting.
Kirk S. Hachigian, former chairman, president and CEO of Cooper Industries plc, who will be the board’s lead director or non-executive chairman.
Luc Oursel, chairman, president and CEO of Areva SA.
Allegion is an Irish plc, with its North American corporate office in Carmel, Ind., employing about 7,600 people in 35 countries including 20 production and distribution facilities around the world.
Allegion will compete in the $30 billion global security products and solutions industry by investing in attractive developing markets and emerging technology; leveraging its expertise to deliver differentiated products and services in key market segments; building upon its operational excellence program; and pursuing acquisitions selectively to accelerate expansion into attractive markets and products.
The portfolio includes strategic brands CISA®, Interflex®, LCN®, Schlage® and Von Duprin®; and other brands including aptiQ®, Briton™, Bricard®, BOCOM Systems™, Dalco™, Dexter®, Falcon®, Fusion Hardware Group™, Glynn-Johnson®, ITO Kilit™, Ives®, Kryptonite®, Legge®, Martin Roberts™, Normbau™, Randi™, Steelcraft® and XceedID®.
Allegion expects to list its shares on the New York Stock Exchange and use the ticker symbol ALLE.
Matrix Systems Plans to Strengthen Company-Wide Operations Through Lean Process Implementation
Matrix Systems, Miamisburg, Ohio, an access control and security solutions provider, recently announced plans to implement new strategies to increase efficiency in manufacturing and R&D, and to further improve customer service. With demand for Matrix Systems’ access control and security management solutions growing at a rapid pace, the company stated, the incorporation of Lean processes throughout its business structure ensures continued growth and success, it said.
Matrix Systems launched the Lean initiative with a company-wide training that included all employees, followed immediately by a Value Stream Mapping exercise to improve customer proposal accuracy and lead time. A paradigm shift has taken place at the more than 30-year-old company, moving from traditional manufacturing practices to a culture that embraces continuous improvement to realize tangible benefit at all levels of its business. The Lean process is being applied to data sharing and work flows throughout the sales, finance and manufacturing divisions within the Matrix organization.
ASG Security Purchases Accounts from Alarm Protection Technology
ASG, Beltsville, Md., purchased all of the assets of Alarm Protection Technology in Louisiana.
“These accounts will be merged into our regional office in New Orleans where we service several thousand subscribers,” said Ralph Masino, chief financial officer of ASG.
ASG is currently ranked as the 11th largest security company in the United States by recurring monthly revenue in the SDM 100.
Masino added, “We are happy to add this account base, which will be serviced by our Louisiana team managed by Lou Sepulveda, our regional vice president of operations.”
Steve Rubin of Davis Mergers and Acquisitions Group handled the sale of these accounts for APT.
Study Asks Industry About New Entrants
In most cases, a sudden influx of players and increased competition would be detrimental for an industry. However, the U.S. intruder alarm market is embracing the plethora of new competitors entering the business because these recent market entrants are partnering with established security suppliers to offer complete home security product offerings and increasing market awareness, according to a recent study entitled “The World Market for Intruder Alarms” from IMS Research, Austin Texas, now part of IHS.
The penetration rate for U.S. residential intruder alarm products will increase by 5 to 8 percent during the next three years, the study predicts.
“The penetration rate of intrusion systems in the United States has hovered around the 20 percent mark for some time,” said Adi Pavlovic, security and fire analyst for IHS. “The emergence of new market entrants, such as telecommunications companies, is expected to increase end user awareness of home management systems, which combine traditional home security products with innovative home automation technology.”
While home automation features are driving the penetration of integrated home management systems, the core functionality consists of a basic intrusion system.
The growing list of companies entering the market includes AT&T, Comcast, Cox Communications, Time Warner, Verizon and Lowe’s. Leveraging their existing client base, telecommunications providers are offering home management systems in order to increase their average revenue per user (ARPU). Combining these newer offerings in addition to pre-existing services such as cable, Internet and telephone is becoming an attractive and cost-effective way to entice end users, thus driving the uptake of security products.
Most new entrants have partnered with existing professional monitoring companies, while some have decided to launch their own monitoring stations.
Companies like Verizon and Lowe’s are also taking a different approach to the market. They are specifically tailoring products to the self-monitoring market by offering interactive services without a contract. Although the use of do-it-yourself and self-monitoring systems remains a small portion of the market today, the potential remains high considering the number of smartphone users and home owners/ renters that may not want to spend on a professionally monitored system, IMS Research reported.
Brivo Completes Move into New Headquarters
Brivo Systems LLC, a provider of cloud applications for security management, completed the move into its new 14,200 square-foot headquarters, located in Bethesda, Md.
After many months of working with its architects and builder, Brivo arrived in a new space that reflects both the company’s roots and its future. The new space features an open seating plan designed to increase communication and further foster a culture of innovation and customer service. Part of the office has been christened the “Brivo University Training Center,” an area with on-site and distance learning technologies. This designated space will give Brivo’s dealers the tools they need to deepen their product knowledge and further grow their business, the company stated.
Other features include an experience center, demonstration rooms, technology testing labs, multiple conference rooms, and a well-stocked café for employees to socialize and recharge. The company believes the high technology headquarters will help the company attract and retain top talent in the competitive DC metro employment market. The new headquarters is also LEED-certified.
Steve Van Till, Brivo president and chief executive officer, said, “Think of any of the lofts in New York or San Francisco; we’ve gone back to that kind of design for the office, but we’ve done it with a better environment and surroundings than what you usually have in a start-up. So for me, this new space signifies going back to the creative start-up roots that we’ve had in the company.”
ScanSource Has New Worldwide Management Structure
ScanSource Inc., Greenville, S.C., announced a new management structure to enhance its worldwide technology markets focus and growth strategy. This worldwide management structure creates new leadership roles and reporting segments to globally leverage the company’s leadership in specific technology markets.
ScanSource created two technology segments, each with its own president. The two segments are Worldwide Barcode and Security, which includes ScanSource POS and Barcode and ScanSource Security business units, and Worldwide Communications and Services, which encompasses ScanSource Catalyst, ScanSource Communications and ScanSource Services Group business units.
Glen “Buck” Baker was appointed to the new position of president, Worldwide Barcode and Security. Baker most recently served as interim president of ScanSource Europe, where he was responsible for strategic direction and leadership of the company’s European operations, including its POS & Barcode and Communications business units.
Mike Ferney was appointed to the new position of president, Worldwide Communications and Services. Ferney joined ScanSource in 1998 and most recently served as vice president of merchandising for ScanSource Catalyst where he managed the company’s vendor relationships. Prior to this, Ferney served as vice president of sales for the ScanSource Communications business unit, where he was instrumental in the growth and success of the company.
ScanSource’s management organization includes additional changes in support of the strategic technology focus. Rich Long was appointed president of ScanSource Catalyst and ScanSource Communications, North America.
The company also appointed Scott Benbenek to the new position of senior vice president of Worldwide Operations and Integration Support.
Andrea Meade was appointed to the new position of chief information officer (CIO) and executive vice president of Corporate Development.
The new reporting segments of Worldwide Barcode and Security and Worldwide Communications and Services will replace the geographic segments of North America and International.
Dynamark Security Centers Acquires Ohio Central Station
Dynamark Security Centers, Hagerstown, Md., acquired Security Services Center Inc. a regional central station based in Dayton, Ohio. This acquisition adds a significant number of alarm companies to Dynamark’s growing dealer base, as well as a generous increase to its base of wholesale accounts in the Cincinnati, Dayton and Columbus markets.
Former Security Services Center Inc. owner Tony Shanks will continue to own and operate his alarm company, Wilmington Security, also located in Dayton, using Dynamark Monitoring as his central station. Wilmington Security was named Dynamark Security Centers Master Dealer for Ohio. As such, Wilmington Security will promote Dynamark and develop new independent dealers for the Dynamark Dealer Program.
“This acquisition demonstrates the strength of Dynamark as we continue to expand beyond our East Coast home base,” said Guy Kline, senior executive vice president of Dynamark Security Centers. “With this acquisition, we can now offer many new and exciting programs to Tony’s dealers. It’s all about helping the alarm dealer grow and prosper.” Kline added.
“When I decided to sell, I knew I needed to find the right buyer,” Shanks commented. ”I needed a company that would take care of my dealers and be there to support my own alarm company. Dynamark is that company. We are now served by a UL Listed, CSAA 5-Diamond Central Station, and we’re part of a dealer program that can help all of us grow our businesses.”
Trade Show News
ASIS International’s 59th Annual Seminar and Exhibits will be held at McCormick Place, Chicago. It will once again be held in colocation with the (ISC)2 Security Congress. The event begins on Sept. 24, 2013 and goes until the 27. Full registration will get you a variety of sessions, events, and networking activities in addition to exhibits admission. Register by August 20 to receive a discount on all passes.
The keynote speakers will be Apple co-founder and philanthropist, Steve Wozniak on Wednesday, 25th Prime Minister of Australia, the Honorable John Winston Howard, on Thursday, and NFL coach and analyst, Mike Ditka at the closing luncheon on Friday.
The ASIS foundation brings back its annual golf tournament for its 16th year. The tournament is to be held at the Harborside International golf center on Monday, September 23. It is one of 18 different networking and special events.
The convention also offers a Spouse Program. Full registration includes the opening ceremony, keynotes, exhibit hall, welcome reception, president’s reception, and the closing luncheon in addition to the four scheduled tours of Chicago.
There will be free poster sessions held in the exhibit hall as well as 30-minute tech trends presentations in the Solutions Theater. With more than 200 educational sessions it will be hard to attend everything, so the convention will be selling both complete and partial recordings of the educational program.
In addition ASIS 2013 will be offering free career-related services including: resume reviews, career coaching, information on certifications and online access to career development tools and job postings. In addition if you are transitioning from the military or law enforcement there is a “how to” panel session led by pros that successfully transitioned to private security.
Each day in the program has a chart listing the sessions, which are marked with levels of difficulty, grouped by times, labeled (ISC)2 or ASIS and assigned a track(s). Geoff T. Craighead, CPP and president, ASIS International, states, “The wealth of education sessions on every imaginable topic, peer-to-peer learning, insights from industry visionaries, and exposure to new products and services is astounding. In addition, there are countless opportunities to connect with fellow professionals and form lasting business relationships, as well as friendships.”
For information, visit www.asisonline.org.
Control4 Files IPO
You could purchase stock in Control4, Salt Lake City, Utah, if you wanted to. The company filed an S-1 form with the Securities and Exchange Commission (SEC) to make available up to $60 million worth of company stock available to the public in an initial public offering (IPO) that represents 26 percent total value of the company. The details of the S-1 form reveal a lot about the company.
The home automation, energy management and lighting control company, which describes itself in the S-1 form as sitting “at the center of the fast-growing mainstream segment of the home automation market plans,” will list in the Nasdaq exchange under the symbol CTRL.
In the S-1 form, Control4 states, “We were founded in 2003 to deliver a home automation solution to the mainstream market by enabling consumers to unify their connected devices into a personalized system at an accessible and affordable entry point.”
Control4’s total company valuation is estimated to be $225 million, but in the Risk Factors section of the filing, Control4 reports, “For substantially all of our history, we have experienced net losses and negative cash flows from operations. As of March 31, 2013, we had an accumulated deficit of $107.1 million.”
The exact stock price range and the number of shares will be determined within the next month.
The money raised will, according to Control 4, be used “primarily for general corporate purposes, including working capital and capital expenditures.” Some will also be used to “pay off the remaining amounts owed under a litigation settlement agreement” and invest in complementary technologies, assets or businesses.
The company reported that through March 31, 2013 it has automated an estimated 120,000 homes, and cumulatively sold more than 275,000 of its controller appliances, the “brain of the connected home,” as Control4 describes it.
The company generated revenue of $74.9 million (2010), $93.4 million (2011) and $109.5 million (2012), and $26.6 million for the three months ending March 31, 2013,” Control4 describes in the form.
Home Automation Spurs ‘Realistic’ Integration in the Intruder Alarm Industry
The elusive goal of integration in the intrusion industry is beginning to gain “realistic momentum” with the growing trend to combine home automation and home security systems, on a single platform, according to a recent study titled “The World Maker for Intruder Alarms – 2013 Edition” by Austin, Texas-based IMS Research, now part of HIS.
The residential sector accounted for 40.7 percent of the $2.7 billion global intruder alarm market in 2012, and is forecast to be one of the fastest-growing verticals with a five-year compound annual growth rate of 5.3 percent from 2012 to 2017.
“The increase in new entrants attempting to penetrate the North American and European markets for home security is evidence of how successful this trend is becoming, “said Adi Pavlovic, analyst for access control, fire and security at HIS. “Home-management integration is gaining the most popularity in North America, which will increase the penetration rate of intruder alarm products into the residential sector. Europe also may not be too far behind, as energy-management features are making their way into more homes every year. Deployment in Asia, however, is expected to be the slowest due to its large multifamily-apartment culture and the absence of professional monitoring services.”
Integration in commercial applications remains sluggish, as the industry as a whole awaits standardization.
Honeywell, Melville, N.Y., welcomed Armed Response Team (ART), an Albuquerque, N.M.-based security provider originally founded by a group of police officers, to its First Alert Professional (FAP) Dealer Program. For nearly a decade, ART has specialized in residential and commercial burglar, perimeter and fire alarms, access control solutions, and CCTV surveillance systems. The company is one of the country’s most unique because it provides in-person response to burglar alarms using a team of former sworn, highly experienced police officers who maintain state certification.
For information, visit www.armedresponseteam.com.
AT&T Digital Life, Dallas, recently achieved the CSAA Five Diamond Certification, testifying that 100 percent of Digital Life central station operators achieved proficiency and certification by passing the CSAA Central Station On-Line Operator Training Course. These courses cover virtually all phases of central station communications with customers, law enforcement, fire and emergency services communications centers. Across the industry, there are approximately 2,700 companies or central stations in the United States, which communicate and interact with law enforcement and fire and emergency services agencies. Of this group, fewer than 150 central stations have achieved the CSAA Five Diamond Certified status.