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Imperial Capital

IR to shed security business

McManus: If well capitalized, spinoff could benefit security integrators
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12/12/2012

SWORDS, Ireland—Depending on how the new business is structured, conglomerate Ingersoll Rand’s decision to spin off its security products business could benefit integrators, Michael McManus, Imperial Capital managing director, told Security Systems News.

Kessler on the multiple paid for Vivint

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Wednesday, September 19, 2012

Whenever a big company in the industry sells, there’s interest in the specific metrics of the deal.

I called Jeff Kessler at Imperial Capital to talk about the pending sale of Vivint to the largest private equity group in the country, Blackstone and the numbers.

It’s not every day there’s a $2 billion deal in the security industry.

While Kessler has high praise for Vivint, he says that certain metrics are not as off-the-charts as one might think, at least according to his calculations.

Kessler pointed out that the sale of Vivint for north of $2 billion includes not only Vivint’s home security/automation business, but 2GIG (a manufacturer of alarm/home automations systems) and Vivint Solar.

So while the total enterprise value for the is “north of $2 billion”, the enterprise value for Vivint home security/automation is less than $2 billion, he said.

Which doesn’t mean the valuation is not impressive, it just means “the multiple of RMR, EBITDA or steady state cash flow will be less than the total amount given for the entire company,” he said.

In terms of a multiple of RMR, Vivint has said it has $30 million in RMR. Kessler said RMR will be higher by the time the sale closes at the end of the year. “If you assume that RMR will be higher, and you assume that [Blackstone will pay] something less than $2 billion for Vivint [home automation/security], the multiple of RMR paid would be in the 50s.”

However, Kessler doesn’t like to talk about multiples of RMR. He prefers to look at multiples of steady state cash flow, because that “really gets rid of the accounting variance that really riddles EBITDA,” he said.

Based on his estimates of Vivint’s [home automation/security’s] steady state cash flow, he said the multiple to be paid is actually “at lower end of the 10 to 13 times [steady state cash flow] range paid for larger, quality companies over the past 18 to 24 months.”

Kessler based his assumption on certain transactions such as Bain & Hellman buying Securitas Direct; Ascent Capital buying Monitronics, Summit buying Central Security Group and Oak Hill Capital buying Security Networks.

(I'm quite certain I'll hear from others who's assumptions and math differ from Kessler's. Please leave a comment on this blog or contact me.)

The important thing is that if you're trying to figure out a mulitple of RMR, steady state cash flow or EBITDA, you need to back Vivint Solar and 2GIG out of the equation.

And if you're trying to figure out if your company's ripe for a sale, take a good look at what Vivint's doing, Kessler said. 

Kessler called Vivint is a “model company” that’s taking advantage of new technology and providing  “a value-added proposition at a premium.” The company’s average RMR per new subscriber is the highest at over $50, and they’re doing good things such as moving away from all summer-sales and increasing in-house sales resources.”

The Blackstone deal “should allow Vivint a lot of growth [with the] forward-looking ideas it has on its platter. … This will allow capital runway for projects like increasing the size of their non-summer sales force, increasing their ability to move into new markets such as small and medium sized commercial security, and to fund the growth and development of new products in home and business services, some of which are not even on paper yet.”

There will be lots more deals done in the security industry in the next year. The capital players are interested, but Kessler said it’s the security companies, like Vivint, what he calls the “haves,” those that are taking advantage of new technology and which have a finely tuned sales and marketing efforts that will be the most sought after.

Verint to become independent, public company

Deal announced to ‘buy out’ parent company in share exchange
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08/15/2012

MELVILLE, N.Y.—If the merger deal with its parent company, Comverse Technology Inc. (CTI), goes through as planned, video surveillance provider Verint will be a 100 percent independent public company as early as February.

Who will buy AlarmForce?

 - 
Tuesday, August 7, 2012

AlarmForce, a super-regional security company based in Toronto, announced that its board of directors is taking a look at selling the company. The company has hired Imperial Capital to help it with a possible sale.

The company's market cap value today is listed as $135m and its enterprise value is $119m.

I asked Richard Ginsburg, former CEO of Protection One who is now managing partner at G3 Capital Partners, what he thought about the sale of AlarmForce. He said he thought the company is well run and that CEO Joel Matlin "has done a fabulous job of identifying a segment of the market open to value-oriented products (like their new video offering) at prices that are at or lower in comparison to traditional systems with basic offerings."

Ginsburg also said he believes "a company like AlarmForce is in a great position to compete with the likes of industry leader ADT and the emerging cable and telecom companies because of [AlarmForce's] single-minded focus on enhanced services like two-way voice and now video services." He added that he believes "some of the traditional companies are in a weaker position to compete in comparison."

Ginsburg predicted the company will get "good interest"  and said Imperial Capital has "formed a great niche in the M&A sector so they are a good choice [to help out with a sale.]"

The last time I spoke to CEO Joel Matlin was back in the winter of 2010 when he was opening a fourth office in Minneapolis/St. Paul.It has offices in North Carolina (opened in 2005), Ohio (opened in January 2006)  and it opened an office in Georgia in 2007.

AlarmForce does security alarm monitoring, personal emergency response monitoring, video surveillance for resi and commercial customers. Something that’s unique about AlarmForce is that it manufactures and installs its own two-way voice home alarm systems. When I did that interview, AlarmForce had 103,000 accounts in Canada and the U.S., which Matlin told me was up from 56,700 accounts in 2006. Today the number of accounts is closer to 125,000.

“Canada is a tough country to do business in. It’s got a population the same as the state of the California, but it’s spread out over a country that’s much larger than the U.S.,” Matlin said. In addition to dense population centers that are easier to penetrate, “the perception of crime is stronger in the U.S. than it is in Canada.”

Wonder who some potential buyers might be? One possiblitiy, in my opinion would be Stanley, which expanded its resi business in Canada last summer with the purchase of Microtec Security Systems. It got 80,000 accounts and additional bi-lingual monitoring capability out of the deal.

Or I suppose AlarmForce could be a bolt-on for a telecom that’s getting into the security business. Rogers Communications maybe? Here’s a video from the summer of 2011 where we talk about Rogers Communications working (in secret!) with iControl to get into the security industry.  And here’s a story about the deal.

AlarmForce board of directors has formed a committee of independent directors to supervise the strategic review.

 

M&A and your company

PSA-TEC sessions look at measuring a company's growth and prospects for exiting this year
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05/23/2012

WESTMINSTER, Colo.—Thinking about selling your systems integration company this year? What kind of price can you expect for your business?

Tri-Ed/Northern acquired by private equity firm

Audax Group acquires, Comunale says goal is to build a 'billion dollar business in 3 to 5 years'
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04/04/2012

BOSTON—Audax Group, a $5 billion private equity firm based here, announced April 4 that it has acquired Tri-Ed/Northern Video.

Interface Security Systems buys Westec Intelligent Surveillance

Combined company is major independent managed service provider
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03/29/2012

LAS VEGAS—Interface Security Systems a St. Louis-based integrator, acquired Westec Intelligent Surveillance, Jeffrey Frye, Interface VP sales and marketing told Security Systems News on March 28.

Kessler on the Stanley/Niscayah numbers

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06/30/2011

NEW YORK—Stanley Black & Decker definitely upped the ante with its bid, announced this week, for Niscayah. It’s a bid that’s been called generous by some, but is Stanley offering a premium price?

Stanley makes $1.2 billion cash bid for Niscayah

Securitas/Niscayah reunion not looking so imminent
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06/27/2011

NEW BRITAIN, Conn.—Stanley Black & Decker, parent company of Stanley CSS, announced today that it made a $1.2 billion all-cash bid for commercial security integrator and monitoring company Niscayah. The bid is supported by the Niscayah board of directors, which announced today that it unanimously recommends that shareholders accept the public offer.

Is a Securitas/Niscayah reunion imminent?

Mack says reunited companies better positioned to compete with the likes of G4S
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05/19/2011

STOCKHOLM, Sweden—Is it strange that guarding giant Securitas, which divested itself of its systems integration business (Securitas Systems, now Niscayah) five years ago, this week made a bid to buy that very same business back?

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