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John Lundgren

Once IR spins off security division, will others follow?

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Wednesday, June 12, 2013

Once IR spins off its security division, will others follow? Poking around some investor conference info recently, I came across this tidbit on Seeking Alpha

“Stanley Black & Decker Chairman John Lundgren made an interesting revelation during his chat at the Electrical Products Group Conference yesterday. [The conference took place in late May]. The exec says the company will keep an eye on the spinoff from Ingersoll Rand of its security business to see if a similar move would make sense for SWK with its security business. On strategy: "Because if we are convinced a year or two years from now that we have got a 12x EBITDA business trapped in a 7 or 8x business, we will make it bigger."

Through my Stanley contacts, I asked Brett D. Bontrager, SVP and Group Executive, Stanley Security Solutions, for further comment on Lundgren’s statement. Bontrager declined comment saying that there was nothing more to say beyond what John Lundgren stated.

You may recall that Ingersoll Rand announced in December that it would spin off its security products business.  Here’s my story. The IR security business—which includes brands such as Schlage locks and other electronic and biometric access control products—will be a $2 billion company once it is spun off. The remaining IR business will be a $12 billion business.

Following the IR spinoff announcement, reports, such as this one from Bloomberg, speculated that the new standalone IR security company will present an acquisition target. This report said potential acquirers include Stanley Black & Decker (to add to its security businesses and further diversify from its power tools), Tyco (might be interested in IR’s commercial products but not its resi security products) and UTC. The report also notes that IR, which is headquartered in Swords, Ireland, presents certain tax advantages.

The IR spinoff was prompted by activist shareholder Nelson Peltz, whose Trian Fund Management owns about 7.3 percent of IR stock.

During ISC West, IR announced that Patrick Shannon will serve as senior VP and CFO of the new security spinoff and Barbara Santoro will serve as SVP and general counsel. They will report to the CEO, who has yet to be named.

Stanley execs talk about progress on Niscayah acquisition

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Monday, January 30, 2012

Stanley CSS’s parent company, Stanley Black & Decker exceeded Wall Street expectations last week with its earnings announcement.  It had Q4 revenue of $2.8b, up 17 percent over 2010 Q4 revenues, and organic revenue growth was up 6 percent over the same period.

The security segment was up 1 one percent with 4 percent organic growth in Convergent Security, according to the conference call. Security has Q4 sales of $827 million. That revenue figure is up 49 percent over last year (2010 Q4 revenues were $555m) —with most of the growth attributed to the acquisition of Niscayah.  Total 2011 Q4 sales for security were $2.6 billion compared to $2 billion in 2011.

With the Niscayah acquisition, “security makes up 30 percent of company revenues—up 23 percent from a year ago … Security segment profit was $129 million, up 37 percent and their profit rate increased to 18.5 percent, excluding acquisitions. The increase was driven by strong price inflation recovery, acquisition synergies and ongoing productivity initiatives,” Stanley Black & Decker CEO John Lundgren said in the conference call.

He said Stanley is still expecting to realize $45 million in cost synergies from the purchase of Niscayah. “It’s going to drive about $0.20 of accretion and about $35 million more in synergies in 2013. That’s the $80 million that we projected upon announcement of the acquisition.”

In terms of personnel changes as the result of the acquisition, Lundgren said: “Major upgrades to leadership are complete.” He said that acquisition brought with it “terrific strength in field tech and field sales and installation, both in Europe and the U.S. …so it’s a nice upgrade with the combined team.”

This quarter security’s “installation sales were up 12 percent globally, with monitoring RMR of 3 percent with a positive outlook,” Lundgren said. He noted the Niscayah’s operating margin rate “will continue to improve …but that it will continue to be a drag on the entire segment in 2012.”

Talking about the Niscayah integration, James M. Loree, Stanley Black & Decker COO, said Stanley is following the “HSM model … so that you have a nice blend of central oversight with the local regional management . And that’s going to take about 3 years to fully implement.” Stanley bought HSM in 2007 for $545 million.

Lundgren added: “we’ve seen the NIscayah model before, good business, too much installation, not enough recurring. We know what to do with that. And, Oh, by the wsy, we have a history with security acquisitions of improving margings uip to 400 to 1,000 basis points within two to three years … we’ve seen nothing [since announcing the acquisition] that would lead us to back off from that.”

Lundgren also pointed out two Niscayah strengths that Stanley will adopt and implement. He said Niscayah “is very good at recurring service revenue … maintenance, scheduled maintenance, prepaid maintenance …” and  “excellent talent” in “vertical market prowess .. particularly in financial services.”

Direct quotes are courtesy of www.SeekingAlpha.com.