Home technology franchise retools strategy

CHARLOTTE, N.C.-A franchise operation under the umbrella of a technology holding company is being spun-off as its own entity in an attempt to break the company from the market troubles of its parent company. LifeStyle Technologies (LST), a home technology installation franchise operation, will be spun off through a complex merger of its parent company, eResource Capital Group and Princeton Mining Company, a public shell company with little assets. LST will become a subsidiary of Princeton, but in return for the LST shares, eResource Capital Group will control 75 percent, or a majority interest in Princeton. The shell company was expected to raise $1.3 million in equity capital by May 18 to close the transaction. LST, which evolved from a home systems integrator into a franchise program with 10 franchise locations and two company owned stores today, will reap the benefits of being its own entity in financial transparency to potential investors and shareholders, said Paul Johnson, chief executive officer of LST. The company will also be free of its parent company's market woes; RCG's stock closed at press time in mid-May at 21 cents per share and has ranged from 11 cents a share to $1.20 over the past year. RCG also owns a leisure charter travel service company, telecommunications call centers, a technology business consulting group and Internet solutions businesses. "RCG has suffered like a lot of small cap stocks and it also has a group of companies, none of which fit together that well," Johnson said. "We don't have the market value on LST that it should have because it's not a pure play." Johnson and company officials at RCG are hoping that the spin-off will spur LST toward its next set of goals, a $3 million round of financing and a roll-out plan of 15 additional franchise locations and five more company stores in the next 12 months. Five franchises are already in the works, Johnson said. The model the company is currently operating today is slightly different than its initial one, Johnson said, in part due to some early stumbling blocks. Where before the company's focus was heavy into security - LST bought Greater Atlanta Alarm Services Inc. last summer - the company discovered that the different installation aspects of home technology required many diverse skill sets in its labor force. "We really didn't have the breadth of technical knowledge to sell that broad of a product line," he said. Company officials also discovered that the type of business conducted throughout its franchises varied widely; the new model is more flexible, Johnson said. "We need to look at the market demographic and figure out what's best to go after," Johnson said. A branch in Hilton Head, N.C., for example, performs nearly all its installations on custom homes as opposed to high volume work with builders, he said. Now, LST will focus on using any capital for brand awareness and for geographic growth around the country for its company owned stores. According to industry analyst Joe Freeman of J.P. Freeman Co., success in franchising depends on the product and whether or not the company can amass a skilled enough labor pool to handle installation and service.