Will Stanley/ADT buy Protection One from GTCR in 2015?

LAWRENCE, Kan.—The announcement on Tuesday that GTCR and Tim Whall were returning to the security industry as the new owner and CEO of Protection One has insiders discussing how their strategy with Pro One will differ from past deals.

Will they use the same investment playbook? Will Whall be aggressive with acquisitions like he has been in the past? Are they looking to “pretty up” Pro One and sell to ADT or Stanley in five years?

It's only been two days since GTCR announced it would acquire Protection One for $828 million, and the tender offer deal won't close for a few weeks, so there are more questions than answers right now, of course.

Those who spoke to Security Systems News universally agreed on two issues: The deal bodes well for the security industry and Tim Whall and GTCR will succeed in growing Protection One.

“Richard [Ginsburg] and Darius [Nevin] saved P-One from the brink of bankruptcy and now you have Tim and GTCR to take it to a whole new level. This is great for the industry,” said Sean Forrest, managing director for The PrivateBank. He added that, “Tim is the most competitive person I know.”

Forrest knows Tim Whall and Jim Covert (who will serve as an advisor director of Pro One) well. He worked for Covert and Whall for three years, serving as CFO of HSM.

This is the third time around for private equity group GTCR teaming up with security executives Whall and Covert. In 1999 they bought Cambridge Protection Industries. Covert and Whall grew it through acquisitions (notably Ameritech, a large residential company) to the second-largest electronic security group in the United States. Covert sold Cambridge to ADT for $1 billion in cash in 2001. GTCR invested $100 million in equity in the deal and netted $500 million in the sale. In 2004, Covert and GTCR returned to the security industry, bought HSM (Honeywell Security Monitoring) from Honeywell for $315, then turned the company around, expanded it and sold to Stanley for $545 million in cash in 2007. Whall was CEO of HSM and COO of Cambridge. When Stanley bought HSM, Whall served as president of the company until he left to pursue other interests in January 2008.

David Donnini, GTCR principal, said he is unable to comment on future plans during the tender offer period, but he was willing to characterize the strategies with the Cambridge and HSM deals for Security Systems News.

“HSM was more about turning around a shrinking business and getting it going again, especially in the high-end commercial space ... Cambridge was more about the improvement of service levels and dramatically improving the operating efficiencies,” Donnini said.

PrivateBank's Forrest expects Whall “to focus on organic growth, though acquisitions will be part of the strategy. P1 has been capital constrained for an awfully long time, now you've got the right capital provider and leadership; I expect Pro One to grow significantly.”

How will the strategy differ from HSM? Forrest noted that since HSM was bought from Honeywell, the first year was spent “carving it out of Honeywell into an independent company and then turning around a shrinking entity and making it grow.” In this case, Pro One has been an independent entity, “so that task doesn't have to be done. Growth is what's been missing. P1 hasn't had the capital to invest in growth and with new investors that's going to be the focus,” he said.

Might GTCR sell off a division of Pro One? Brian Dettmann, managing partner of Caledonia Partners in Chicago, said that given the size and scale of Pro One's business, GTCR and Whall will have “lots of options regarding what they can do to improve and grow the business. The various divisions are generally large enough that if they decided to divest any one of them, they would most likely have several interested buyers.”

The current owners, Quadrangle Group, have been in “harvesting, not investing mode” for some time said Henry Edmonds of The Edmonds Group. “They've been taking money out of Pro One,” noting that the debt markets have been difficult during recent years as well. With GTCR, Pro One “will be in a very different place.” Edmonds predicts lots of acquisitions for Pro One in the future. “GTCR loves to partner with management teams they know, buy platforms and grow them through acquisitions ... I expect they'll be an active participant in the buying market on a number of levels.”

He added that whether they grow through acquisitions or organically, growing substantially is the goal. “If they're not a lot bigger by the time they sell, they won't get the returns they're looking for,” he said.

And to whom will GTCR sell? “I expect GTCR to invest meaningfully in growth over the next few years and then exit by selling to a strategic buyer, quite possibly ADT or Stanley, companies they've successfully sold to before,” Edmonds said.

Edmonds said that Covert made no secret of the fact that he'd identified Stanley as a buyer for HSM early on. He'd keep improving the company and hitting his numbers and letting Stanley know from time to time, “here's my price.”

Forrest said Covert's ability to recognize “talented people and opportunities is legendary in the security industry.” Does he think GTCR will try to sell to Stanley again? “Anything is possible,” Forrest said.