ProOne: 'We're buying'

With IASG digested, cash in hand, Protection One is again hungry for acquisitions
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Monday, December 14, 2009

LAWRENCE, Kan.—You certainly can’t fault Protection One for subtlety in its advertising. Web banners went up all over the industry last month with a simple message: “We’re buying.”

Pro One CEO Richard Ginsburg didn’t mince words, either, when describing the company’s motivation: “We’re here, we have capital, we know how to integrate acquisitions, and we’ve done more than most people have. We want to get people reengaged with us, remind them that we are a buyer of accounts.”

So, what’s changed recently? Two things, Ginsburg said. First, the company has finally digested and fully integrated its 2007 IASG purchase, which brought with it monitoring giant Criticom (now integrated into Pro One’s CMS). Second, in November Protection One extended its credit facility and increased its available cash by $75 million, which will save the company $1.5 million per year in interest alone and gives the company fuel for acquisitions.

Ginsburg called the credit extension “an important transaction for the industry. It’s one of the first capital raises of that size in quite some time.” Taken with the $200 million-plus that APXAlarm raised in October, it’s a sign that the credit markets may finally be substantially freeing up.

But just what is Protection One looking to buy? For one, don’t be surprised if the company acquires in the commercial integration space. “It’s not as well known as we’d like that we have a pretty large commercial business,” said Ginsburg, “with over 100,000 commercial customers, over $6 million in commercial RMR. We’re one of the largest companies in the industry ... we’re not afraid to look at fire companies, integrators of access and video, it’s becoming a larger part of our business and will continue to be a large part of our business. We used to be just a residential buyer, but we’re not anymore.”

Will the company pay for integrators who don’t have a substantial RMR base, though? “They’re attractive to us if the expectations are realistic,” Ginsburg said. “It’s hard for us to pay for lumpy performance ... Recurring revenue gives you a foundation for value. We look at integrators all the time that don’t have a lot of RMR—the seller always thinks they have this business that makes great margin, but as a buyer we have to wonder, will those relationships continue? It’s a little more tricky. Integrators are starting to realize that if the end game is to sell the business at some point, RMR is going to be important.”

As for the residential market, all the same old rules apply: get your attrition low, have good records of your contracts, and high credit ratings don’t hurt. However, in this age of social media, a new factor is in play, said Ginsburg. “The business owner and the business have to have a good reputation in the marketplace,” he said. “A bad customer experience can kind of go viral ... We’ll go online and check the reputation of that company. I think that’s more important than ever. If we’re looking at a company and we check their Better Business Bureau rating and it’s terrible, that’s going to sway value, and if we go out there on the web and consumer type sites and there’s a lot of negative stories there, that’s going to affect our opinion as well.”