Security Networks acquired by Oak Hill Capital

$8 billion PE firm makes first security investment
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Tuesday, November 9, 2010

WEST PALM BEACH, Fla.—Expect to see super-regional Security Networks expand operations west of the Mississippi as the result of its Nov. 8 acquisition by private equity firm Oak Hill Capital Partners.

Oak Hill, an $8 billion company with offices in New York and Menlo Park, Calif., is making its first foray into the security alarm space with this buy.

The acquisition, terms of which were not announced, is a partnership between Security Networks management and Oak Hill. Previously, Security Networks was owned by GMH Associates.

In terms of the management team and day-to-day operations, “nothing will change,” said Rich Perry, CEO of Security Networks. “Security Networks is one of the fastest growing alarm companies in this space. We want to continue to grow our business and take advantage of opportunities in the marketplace. Partnering up with a larger private equity sponsor [will allow us to do that],” he said.

Perry said Security Networks’ four-year CAGR is 34 percent, “and our revenue grew 38 percent last year.” Its primary growth engine is its affiliate program, which is “like a dealer program with a few tweaks,” Perry said. Security Networks takes over the service of the account after the initial sale, for example. The program has grown from “one affiliate four years ago to north of 120 affiliates today,” Perry said.

Security Networks has more than 70,000 residential and commercial subscribers and more than $2.7 million in RMR.

Senior debt financing was arranged by Goldman Sachs Specialty Lending Group and Barclays Private Credit Partners. Subordinated debt financing was provided by BNY Mellon-Alcentra Mezzanine Partners and Northwestern Mutual Capital.

Up to this point, Security Networks has operated east of the Mississippi. The partnership will enable Security Networks to expand west, adding affiliates in that part of the country and making “tuck-in acquisitions on an opportunistic basis.”

Jonathan Friesel, a partner of Oak Hill Capital told Security System News: “We have been evaluating opportunities in the home security market for some time and are very excited to invest in Security Networks, a company with an impressive management team, a strong affiliate network, and an expanding customer base. We look forward to working closely with management to support the company’s growth strategy.”