Dealer program creeping out of its shell

Wednesday, October 1, 2003

Despite the sluggish economy, credit-shy investment banks and the general bad rap that they have accumulated over the past year, dealer programs are making a comeback in the security industry, attractive to both large and small dealers looking to take advantage of opportunities to grow their business.

While two smaller dealer programs have launched to independent dealers, one from Microtec Security in Canada, and another from Eagle Broadband Security in Texas (see related stories), and two more larger scale ones reportedly on the horizon, it appears that the market is recovering from the past year of high-profile troubles in some of the industry’s largest programs.

Those troubles come namely in the form of cutbacks made a year ago by ADT, which abruptly announced early last fall that it was making major changes to its dealer program, cutting back account funding by 40 percent and eliminating some low production dealers from the program entirely. If only for the sheer number of dealers affected, the repercussions of those changes were felt widely throughout the industry.

It’s the lessons learned, in part from the ADT cutbacks and other dealer program troubles, that have helped to reverse the recent trend, said some industry lenders.

“The tide is reversed, with the understanding that the financial metrics have got to change and customer service has to be paramount,” said Tony Smith, president, Security Finance Associates, Pasadena, Calif.

Because many dealer programs were centered around rapid growth plans, troubles with attrition were prevalent. Criticism of customer service, dealer relations, as well as sales tactics employed were also issues that dealer programs today need to address.

“The problems at ADT certainly have colored the landscape to this point,” Smith said, “but I think that most people recognize that the problems were ADT’s, not the dealer programs’.”

What a dealer program needs to succeed most of all, however, is funding to purchase the accounts. A lack of capital available to the alarm dealer makes availability of account funding more attractive.

“In general, we have fewer banks lending to the industry,” said Henry Edmonds, chief executive officer and co-founder of SLP Capital. “And to be a successful program, you have to have a great deal of discipline in your underwriting, your service programs, and your due diligence to avoid repeating the problems of the past.”

Edmonds said that although the five or so banks that are lending to the industry, compared with the 10 to 15 service alarm companies several years ago, are keeping additional funding close to the vest, that “value will start to go up and people will be a lot more excited” over the next three to six months.

The recent $200 million initial public offering of Integrated Alarm Services Group, formerly King-Monital-IDC, is a sign that the tide is turning, he said.