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Michael Barnes

Apollo lands Protection 1, ASG

Whall: Combined company will be ‘a force in the marketplace’

NEW YORK—Apollo Global Management is about to take one giant leap into security with its May 19 agreement to acquire Protection 1 and ASG Security.

Apollo lands Protection 1, ASG

Wednesday, May 20, 2015

Apollo Global Management is about to take one giant leap into security with its May 19 agreement to acquire Protection 1 and ASG Security.

Under the agreement, the combined companies will operate under the Protection 1 brand, with Protection 1 CEO Tim Whall at the helm.

Security Systems News reported on the proposed deal last week. Here's that story.

I had a chance to interview Protection 1 CEO Tim Whall, CMO Jamie Haenggi and ASG's CEO Joe Nuccio last night. I was looking for details about how the new management might be structured, but that will have to wait until the deal is closed. The earliest possible closing date would be July, Whall said.

The May 19 announcement did not include proposed terms of the agreement, though $2 billion has been reported by Rueters.

Whall said that the “combination of Protection 1 and ASG instantly gives both companies a wider footprint where they each did not have one and a greater density in the markets where we overlap. There is a definite benefit for the customers as well as the employees. And given our like-minded approach to the operations, the combination will be a force in the marketplace."

Haenggi added that “the combination of the two companies creates a $40 million recurring revenue and over $600 million entity, with more organic growth and acquisitions on the horizon. It has never been Protection 1’s or ASG’s goal to be the biggest—it has always been both companies aim to be the best both for our customers and our employees.”

Whall, Haenggi and Nuccio all spoke about the benefits of having a private equity group the size of Apollo (this group manages $163 billion) involved in the security industry. When Apollo gets involved, other funds take notice, Whall said.

That means more resources for Protection 1 and potentially for other security industry companies.

I spoke with Michael Barnes, a partner in the consulting and advisory firm Barnes Associates, who is advising Apollo. I asked him about the people at Apollo who are behind the deal. Barnes said while Apollo is a huge fund with many employees, "the team that has been focused on the security alarm industry and driving these deals is relatively small. They are very smart and they cycle through tough decisions quickly. They should make a great partner for P1 and ASG."

How might the group from Apollo work with managment? Barnes said, "From what we can tell, their philosophy seems to be to pick the best horse and jockey and then let them run. To extend the analogy, I am sure they will influence things like what races they enter, but as long as they are winning they will likely just focus on making sure they have the needed resources and otherwise stay out of their way."

I posed the same question to the folks at Apollo in a couple of calls last night, but they declined comment.

Whall, Haenggi and Nuccio also spoke about how the new Protection 1—with the staff, expertise and client base and geographic coverage that ASG brings—will be uniquely positioned in the industry.

Haenggi said that Apollo has been studying the industry for some time. They liked that Protection 1 has "not only has the national footprint, but also the breadth of services and markets serving residential, commercial and national accounts," she said.  "Back in the day, there was ADT that had the size and breadth. Today, there is no one serving across all of these segments with the size of Protection 1. We are in a position to take that lead but do it with a decidedly ‘Protection 1 approach’ to business."

Barnes concurred with Haenggi, saying P1, especially with ASG added, is the largest industry player with "a business model on which most of the industry was built. That is, having a large commitment to specific geographic markets and a broad range of product and services aimed at virtually the entire spectrum of customer types—everything from low-cost, entry-level residential systems, including a DIY offering, all the way up to large-scale systems for the commercial and institutional segments.

Both companies also know how to acquire and consolidate smaller companies, Barnes noted. "This robust approach is in contrast to virtually all of the other large, national players, who are more narrowly focused, such as Tyco, Stanley and Diebold on commercial markets, and ADT, Vivint, and Monitronics primarily on the residential market."

What does Tim Whall say about Protection 1's expansion plans? Will it expand beyond the U.S. market? “I think it's safe to say that Protection 1 will hold not just a U.S. footprint, but a North American footprint," he said.

Asked about possible aspirations for a global presence, Whall laughed and said: “Well, before we talk international, let’s get this deal signed first and over the line—we’ll see how international we get, but I certainly would not rule out lots of growth from Protection 1 over the next several years.”

Private equity is no stranger to security, especially in the past two years. Recent deals include: Vivint to Blackstone, SAFE to ICV Partners, ACA to Norwest Capital, and most recently, Ackerman to Imperial Capital, Barnes noted. However, this deal stands out, he said.  "I can’t remember an investor like Apollo making a first step into the industry, on this scale, doing two transactions at the same time, and particularly with such a good fit between the two."

To attract private equity investors, Barnes said you "have to have all of the requisite pieces of the puzzle…size, capability, management, and growth. In addition, you generally have to have a strong overall industry opportunity, since one is effectively competing against all other possible investment opportunities." 

The long list of dealmakers involved in this transaction include: Financing is provided by Credit Suisse, Barclays, Deutsche Bank, Jefferies and RBC. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal adviser to Apollo; Latham & Watkins LLP is acting as legal adviser to Protection 1; and Kirkland & Ellis LLP is acting as legal adviser to ASG Security. Morgan Stanley and Raymond James are acting as financial advisors to Protection 1 and Goldman Sachs is acting as financial advisor to ASG Security. Barnes Associates is advising Apollo.

Security investment and finance in ’14

New players and investors enter security industry, show interest in innovative pricing and business models, expanded services

YARMOUTH, Maine—Valuations, at least for smaller security deals, were generally higher in 2014 compared to 2013. That is one area of agreement among three security finance and investment experts who participated in a Security Systems News virtual round table.

Barnes Associates wholesale monitoring survey finds accounts up 19 percent

Michael Barnes suspects cableco/telecom influx could be behind ‘unprecedented growth’

YARMOUTH, Maine—Much can be gleaned from the fourth annual Barnes Associates/SSN/CSAA wholesale monitoring survey, but if anything stands out about 2013, it’s that overall growth was gaudy.

Credit scores and attrition: Correlation?

Monday, July 15, 2013

The quest to reduce the dreaded attrition rate remains a high priority for anyone in the monitoring space, and companies continue to explore new ways to predict and prevent cancellations. Companies don’t just track attrition rates; they look for clues, like usage patterns, that could yield information about whether certain customers may be more prone to stay or go. 

While usage patterns remain a valuable tool for evaluating customers and forming effective business strategies (conventional wisdom says upsell to active users, and reduce prices to the less engaged), it’s not the only predictor companies use. There is also a significant correlation between credit scores, or Beacon scores, and attrition rates, according to Michael Barnes, a partner in the consulting and advisory firm Barnes Associates, who in a response on the CSAA’s Accent forum, said his firm reviewed data on over 2 million accounts. Here’s a bit of what he had to say:

“Generally speaking, the correlation changes over four ranges of scoring. Below 600, the statistical experience is very bad. That is, the accounts have a very high cancellation rate. Between 600 and 650 the results improve dramatically, with a general inflection point around 620+/-, which is why so many dealer programs (and, in some cases credit facilities) have restrictions around this area of scoring.”

Barnes added that scores above 700, in terms of attrition and retention, tend to behave the same as scores around 800. Scores in the ballpark of 650 tend to have poor cumulative performance, with the rates of cancellation almost twice as high over the first four years, Barnes notes. Unsurprisingly, rates of “infant mortality’—cancellations within the first year of existence—were exceedingly high among those with sub-650 Beacon scores, according to Barnes’ data.

While the data sample is large enough to provide a thorough understanding of the relationship between credit scores and attrition, Barnes points out that some qualifications are needed, since a slew of factors can create exceptions. Some of these key variables include installation fees, services provided, pricing and payment method, and even geographic location.

The above graph, made for SSN in 2009 by the Edmonds Group, also charts the correlation between attrition rates and Beacon credit scores. 

Steve Baker, other industry vets launch GHS Interactive Security

LifeLine Security is acquired as platform for growth, Topspin is equity partner, Barnes Associates advised deal

SACRAMENTO, Calif.—Industry veteran Steve Baker, who has served in executive roles at ADT, Monitronics and Westec, announced May 22 that his corporation, GHS Interactive Security, has acquired LifeLine Security and Automation as a platform for growth.

Barnes Associates/SSN wholesale monitoring survey finds accounts up nearly 11 percent in 2012

Michael Barnes calls results 'very positive indicator' for industry

YARMOUTH, Maine—The wholesale monitoring industry posted surprisingly strong growth in 2012, with accounts increasing 10.7 percent and average RMR for alarm companies following nearly in lock step, according to a new survey led by Barnes Associates.

Glow or glower? Readers chart industry’s prospects for 2013


YARMOUTH, Maine—In mid-December, The Wall Street Journal defied doomsayers and the pending fiscal cliff with an article headlined “Economy Poised to Nudge Ahead in 2013.” The Journal predicted that the U.S. recovery would gain a bit of steam through the year, ushering in a period of more normal growth.

Martha talks to Mike Barnes: RMR growth rate, other metrics revealed

Wednesday, February 13, 2013

I had a chance today to talk to Mike Barnes about last week's Barnes Buchanan Conference. Below are some highlights of our conversation.

Interested in more insight on RMR and related growth? Check out the April issue of SSN for the 3rd annual Special Report of the SSN/Barnes Associates Wholesale Monitoring study. The study will also be available online on, and featured in a future Thursday morning newswire

The SSN/Barnes Associates Wholesale Monitoring study tracks the number of accounts monitored by the wholesale monitoring segment. As Barnes says, "There has always been great clarity on the performance of the top players, which on a combined basis have an approximate 51 percent market share." The challenge has always been to determine what is happening with the many thousands of smaller alarm companies that comprise the other half of the industry—this survey sheds light on that question. This year the response rate was even greater, thanks in part to the CSAA Contract Monitoring Council, which is a new co-sponsor of the survey.

Martha: What's the Barnes outlook for 2013?

Mike: We are bullish on 2013.  Even with the economy still sputtering and some remaining challenges in the commercial segment, I think 2013 is likely to be better than most people are predicting.
Martha: What highlights can you share about the categories you generally hit on: growth, structure, operating metrics, market values?

Mike: The big surprise for 2012 was how much the industry grew RMR and related revenues. Our research indicates that these revenues grew by an astounding 8 percent. Quite a bit higher than expected. Overall industry revenues were flat, due to the decline in installation revenues. That is, installation revenues were down and RMR was up. This dynamic appears to be a combination of price shifting, where lower average-installation fees are exchanged for higher ongoing service charges, and continued shrinking revenues in the large commercial systems segment.

Martha: What was the most surprising metric this year?

Mike: By far the growth in industry RMR was the surprise metric. Additionally, it appears that this growth had a nice balance, with about half coming from higher average RMR per system, and the other half from a net increase in the number of systems.
Martha: Your bubble charts are always an interesting part of your Industry and Market Overview presentation. I heard there are now green bubbles on the bubble chart? What can you tell me about that? What new information do the new greeen bubbles bring to light?

Mike: Our bubble charts are a great way to graphically view acquisition activity. Each bubble denotes a transaction on a time-and-valuation multiple basis, with the size of the bubble indicating the amount of RMR involved. Basically you see three variables in a simple graphic. HIstorically, we have also added a fourth variable by shading the bubbles one of two colors to indicate the type of buyer, either an existing industry player or a new player buying a platform company. This illustrates how active each type of buyer is, and highlights the fact that new players entering the industry typically pay higher relative prices due to a combination of their selecting the better performers and paying a premium for their highly selective requirements. 

This year we introduced a third color (green) which reflected transactions where only accounts were sold. Take the recent sale of a block of accounts by Pinnacle to Monitronics: As one would expect, the pattern becomes clear that accounts and their associated RMR have a finite value and trade within a relatively tight range, which is, of course, supported by the activity in the dealer program market. It also highlights that fact that when the market trades security alarm companies above this range, it is typically because of the account-origination capability. That is, the ability of the company to originate new customer accounts and related RMR at a cost and volume that is accretive to value. 

It is often overlooked that when a company trades for a high multiple, say 45 times RMR, this is usually not an indication that the RMR sold was worth that amount.  Rather, it is probably the case that the existing account base was valued at something in the 30s as a multiple of RMR, and the difference is predominantly reflecting the value of the account generation engine. This helps bring better clarity to the valuations realized by Vivint and other higher growth companies, and ultimately help buyers and sellers have a more productive conversation when referencing market transactions in their negotiations.
Martha: Other than the "must attend" Barnes' Industry and Market Overview, were there any notable educational sessions or talks?

Mike: We were extremely proud of this year’s conference, both because we had both the right attendees and great content.  Our company presentations provided great insight into several players that are using new and innovative business models. Protect America is a great example. They are using a “direct to consumer” model that allows them to close the sale over the phone or internet, and to ship pre-programed and configured systems which are then installed by the consumer.  It was amazing to hear how successful and large the company has become. Our C-Suite Roundtable was also notable with 4 of the top executives of major companies, including ADT, discussing trends and issues associated with the industry. These segments, combined with ones focusing exclusively on the capital markets and the largest deals that occurred in 2012…and, of course our industry overview…really gave our attendees a great conference.

Barnes Buchanan conference to kick off Feb. 7


PALM BEACH, Fla.—The 18th annual Barnes Buchanan Security Alarm Conference is scheduled for Feb. 7-9 at The Breakers resort.