1. Security Alarm Services
Industry – M&A Review
JANUARY 2013
RKJ Partners, LLC is an
Atlanta, Georgia based
investment banking firm I. INTRODUCTION
designed to specifically assist
lower middle-market growth While the recession caused businesses to reduce security budgets, revenue
companies in executing will recover over the next five years. Revived disposable incomes will
transactions between $2MM
to $75MM. encourage investment in low-cost monitored security systems, and industry
players will increasingly take advantage of new technology, including
biometrics. Furthermore, heightened fire and security regulations will
IN THIS ISSUE:
positively affect growth. For these reasons, RKJ Partners, LLC (“RKJ”) believes
Introduction 1 2013 will be another active year for M&A activity in the Security Alarm Services
Macro Industry Overview 2 Industry. RKJ believes the following attributes will contribute to the continued
Current M&A Market Trends 2
growth of industry:
Industry Growth to Support
M&A Activities 3
❖ The global alarm monitoring market will see significant growth in the short
Key Value Drivers 4 term, with the market reaching $65 billion by 2017. The alarm monitoring
market is dominated by Europe and the US, which account for the majority
2013 M&A Outlook 5 of the market. However, with emerging economies rapidly growing, the
Select M&A Transactions 5
alarm monitoring market will see increasing demand from regions such as
Asia Pacific, the Middle East and South America.
About RKJ Partners, LLC 6
❖ Residential intrusion and fire alarm monitoring services is the largest
business segment within the market, and is also expected to be the fastest
growing segment to 2017.
❖ The fall in demand for construction following the recession reduced the
CYRIL JONES
number of new security systems installed. As a result, many companies
Managing Partner
have started to replace guards and patrols with electronic security
cyril@rkjpartners.com
systems, which are often more cost-efficient by avoiding labor costs.
❖ Government changes to fire and security codes have also boosted industry
GREGORY FICKLIN demand, increasing premiums on insurance policies and fueling
Managing Director consumers' concerns over a potential rise in the crime rate.
greg@rkjpartners.com
❖ The availability of low-cost monitored security systems for the residential
market has also increased the household penetration rate.
❖ A growing trend in the alarm monitoring market is the popularity of virtual
alarm monitoring via the Internet. Furthermore, there is expected to be
increasing demand for new burglar alarm panels, especially those with
added features such as touch screens, GSM communications and home
RKJ PARTNERS, LLC automation features.
4514 Chamblee Dunwoody Rd.
Suite 170
Atlanta, Georgia 30338
p. 404.963.8592
f. 404.920.2159
www.rkjpartners.com
om

2. II. MACRO INDUSTRY OVERVIEW
Security systems are fast becoming lifestyle products for the consumers, thus opening new high-end market for the
manufacturers and service providers. Manufacturers of security devices, distributors and dealers across the globe
adopted novel technologies and services as a measure to offset the slump in the home construction industry. Novel
technological innovations are steering growth in the burglar alarm sector. Companies offering various unique products
as well as services are garnering considerable business in the burglar alarm market. Consumers are increasingly
demanding alarm monitoring companies for the management of the administrative functions of CCTVs, alarm systems
and access controls. GSM technology that comes with various advanced features such as remote control systems
from the web-enabled instruments is fast replacing the traditional analog alarm radios. The GSM technology enables
the homeowners to arm or disarm their security devices and receive an automatic notification of all the non-critical
issues/events through a text message or through an e-mail on their PDAs or mobile phones.
Alarm security services market garnered considerable business until 2007, despite the credit crunch and slowdown in
the construction sector. The intrusion market expanded from conventional alarms, motion sensors and glass break
detectors to high-end technological security systems. However, the economic recession coupled with the slow-down in
the housing sector derailed the momentum in the global home security market during the period 2008-2009. The
market witnessed a drop in demand for houses, which negatively impacted home intrusion market. Slowdown in the
housing sector took severe toll on various security alarm companies catering to the homeland customers and
compelled several manufacturers to close down operations. While housing sector witnessed gloomy business
scenario, the rate of home as well as business break-ins increased at a considerable pace. This offered a whole new
segment of consumers to the alarm companies, post recession. Gradual revival of the housing sector and growing
customer awareness about the need to install a cost-effective and efficient home security system is likely to fuel
demand for alarm monitoring services in the near future. Moreover, increased investment by government entities in
various home security products as well as services would provide further impetus for growth of homeland security
services.
III. CURRENT M&A MARKET TRENDS
The security alarm services industry is enjoying an active M&A market and we are witnessing activity across both the
electronic security and personnel security segments. Electronic security is composed of systems that monitor
physical environments and includes CCTV and fire alarm surveillance systems. This segment includes companies that
install, monitor and maintain such systems. Outsourced personnel security involves the use of persons to guard or
protect a particular physical environment, and related services.
Recent activity in the industry is due in large part to increased competition from larger corporate entities and
downward pressure on market pricing. From late 2007 to 2009, the deepening of the economic recession led to
declines in industry revenue as the demand for installation of new security and fire systems slumped. Consequently,
security firms turned to price‐based competition to gain new contracts and retain clients, a factor that caused industry
2 RKJ PARTNERS, LLC: SECURITY ALARM SERVICES INDUSTRY - M&A REVIEW

3. profits to decline. Consolidation activity rose as firms sought to increase revenue and profit through acquisition and
as industry players capitalized on soft margins by acquiring competitors at attractive valuations.
As the industry stabilized following the recession, valuations have improved. Most of today’s acquisitions are
classified as strategic buys, largely motivated by a desire to add new product lines, expand service offerings and/or
access new geographic territories. The fragmented nature of the security solutions industry, where the majority of
firms still operate on a local or regional scale, lends itself to M&A activity.
Looking ahead, mergers & acquisitions in the industry will be driven by a desire to build full‐service, technologically
advanced systems integrators with a national footprint capable of servicing geographically dispersed enterprises. The
market is increasingly demanding converged solutions that combine physical security, identity management and
information security, and this requirement is expected to be satisfied at least in part by acquisitions.
RKJ also expects increased activity from ancillary industry buyers, primarily facilities managers or specialist
maintenance operators in areas such as air‐conditioning and energy management. These buyers are looking to
expand their service offering with the addition of security solutions so as to offer a total facilities management
solution to clients. Additionally, defense companies and multi-national security companies are predicted to engage in
both landmark and middle market transactions in the industry.
As the convergence process continues, a two‐tiered industry is expected to emerge whereby the top domestic and
international operators will provide an integrated, high-quality security solution at a higher price and margin. The
second tier will consist of industry operators that provide lower‐margin, price‐competitive products and services with
little added value.
RKJ expects healthy activity in this space going forward. As the economy continues to recover and security providers
experience performance improvements, company valuations are expected to rise and M&A activity should accelerate.
Corporate buyers have been, and are expected to continue to be, very active. At the same time, we anticipate
increased interest from private equity groups as they become more active in general, and because they are attracted
to the industry by the security theme, which is supported by global awareness of the need for better security.
IV. INDUSTRY GROWTH TO SUPPORT M&A ACTIVITY
A new era of consistent growth in the security solutions industry should result in continued improvements in
valuations and additional M&A activity in the sector. It should be noted that the industry is fairly mature, which can
also prompt M&A activity, as firms seek growth above that which can be achieved organically. After the deep
recessionary environment, the residential security market is expected to rebound slightly while the commercial
security market is expected to grow more rapidly as it transitions from outsourced personnel security to lower‐cost
electronic systems. IBIS forecasts total industry revenue to increase from $44.9 billion in 2012 to $53 billion in
2017, a compound annual growth rate of approximately 3.4%.
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4. Growth in the security solutions industry is underpinned by the following:
❖ Increase in corporate profits – As the economy recovers from the recession, corporate profits are expected to rise
which will allow companies to allocate a portion of their budgets to security monitoring products and services.
❖ Increase in non‐residential construction – In the next several years, additional investment in non‐residential
construction such as hotels, offices, factories, retail establishments and other buildings should provide an
opportunity for growth.
❖ New technology – As new technology is developed, corporations and commercial entities seek to purchase
advanced products, resulting in increased revenue for security surveillance companies.
❖ Increase in security threats – Rising fears associated with terrorism, crime and other security threats, combined
with a belief that law enforcement may not be capable of prevention, is fueling commercial and residential
demand.
V. KEY VALUE DRIVERS
RKJ is actively involved with security solutions companies and business owners to help prepare them for the market.
In addition, we assist companies by helping them to assess their relative market position, strengths and weaknesses
in an effort to ultimately help maximize shareholder value. As a result, RKJ has identified several attributes of
security products and services providers that tend to be sought after by potential acquirers. To the extent that the
selling company has these characteristics, these value drivers can generally result in more suitors for the target
company, as well as higher offers.
Our list of market value enhancers includes the following:
❖ Geographic Leadership: Buyers are looking for companies with leadership positions in attractive markets that
offer a high concentration of businesses and a large group of industry‐leading enterprises across a variety of
sectors. Territories that are growing in terms of population and commerce are especially attractive to industry
buyers looking to expand their footprint.
❖ Value‐Added Model: The industry is migrating away from a product-focused business model to one of value‐added
services such as: risk assessment and consulting, CAD, system integration, training, and on‐site and in‐field
support services. This approach can generate enhanced and recurring revenue streams as well as create
significant costs associated with switching vendors.
❖ Premier Products and VAR Relationships: Buyers look for security providers to have good vendor relationships,
broad product certifications and a variety of products used for access control, alarm, monitoring, fire and other
components of a total solution, combined with strong technical knowledge of product capabilities and shortfalls.
❖ Diversified Group of Clients and Expertise in Industry Verticals: Providers with expertise in industry verticals such
as healthcare, financial services, technology, biotech, transportation and education are attractive. Additionally,
buyers will want to see a diversified customer base (none accounting for more than 10% of revenue) and a high
client retention rate.
❖ Excellent Reputation and Brand: An established reputation as a top‐tier solutions provider, resulting in a premium
pricing position and solid product distribution, installation and training rights for large product manufacturers and
technology partners is key. These factors provide access to key industry relationships, expanded product lines
and proprietary intellectual property.
❖ Strong History of Growth and Profitability: Providers that have established a stable and resilient business model
that results in consistent revenue increases and healthy EBITDA margins are perceived as a scalable platform
and tend to be in high‐demand by buyers. Such companies can be used to expand geographically, across industry
verticals or as a platform for additional acquisitions.
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5. VI. 2013 M&A OUTLOOK
The Security Alarm Services industry is characterized by a large number of small players, some of which are
subcontractors for major players and provide installation and maintenance services. About 80.5% of industry
enterprises are small businesses with nine or fewer employees. Similarly, firms with fewer than 20 employees
represent over 90% of the industry total. On the opposite end of the spectrum, the largest player occupies a
significant portion of the market. Although the industry's largest player, Tyco, is expected to account for a significant
share of industry revenue in 2012, the next largest player is a fraction of that size. This provides the Security Alarm
Services industry with a low level of concentration, with the four largest firms estimated to account for about one-third
of industry revenue. Industry concentration has increased during the past five years due to M&A activity. In the five
years to 2012, the number of firms operating in this industry has decreased 0.9% annually to 8,979. In 2010, Tyco
acquired the second-largest operator, Broadview Security, during the year. Despite this, the level of concentration is
not expected to change significantly over the short term.
In the next five years, firms will increasingly take advantage of new technologies such as biometrics, which involves
face or fingerprint recognition. Small business growth and increased disposable income levels will also contribute to
rising industry demand. In the five years to 2017, revenue is projected to increase. Profitability will also improve as
operators take advantage of the cost savings and restructuring implemented following the recession.
VII. SELECT M&A TRANSACTIONS
Date Buyer Target Deal Size ($ m illions)
‐
Sep‐12 SurveillanceSpecialties, Ltd Securadyne Systems, LLC NA
‐
Sep 12 Mountainland BusinessSystems/Id & Security IdentiSys Inc NA
‐
Sep 12 A&R Security Services, Inc. Universal Protection Service, Inc. NA
‐
Aug 12 BGUARDED SECURITY Company Orion Diversified Holding Co. Inc. (OTCPK:OODH) NA
‐
Aug 12 Cental Alarm Inc. & Advanced Solutions, Inc. Protection One, Inc. NA
‐
Aug 12 Locknet E.O. Johnson Company, Inc. NA
Aug 12 Home Automation, Inc. Leviton Manufacturing Co., Inc. NA
Jul-12 Smith & Wesson Security Solutions, Inc. FutureNet Group, Inc. NA
Jul-12 HUGHES Telematics, Inc. Verizon Enterprise Solutions Group $713.1
Jul-12 Cross Match Technologies Francisco Partners, Management, LLC NA
Jul-12 Best Systems Energenecs, Inc. NA
Jul-12 Pacific Security TMV Properties, Inc. NA
Jul-12 Avaak, Inc. Netgear, Inc. (NASDAQ GS: NTGR) $22.0
Jun-12 Regent Security Services, Inc. Universal Protection Service, Inc. NA
Jun-12 MPS Alarm Services, LLC F.E. Moran Alarm and Monitoring Services NA
Jun-12 American Alert Corporation Vector Security, Inc. NA
May-12 International Development Solutions ACADEMI NA
May-12 Valor Concepts, LLC Exceed Corporation NA
May-12 Richman Management Corporation Universal Protection Service, Inc. NA
Apr-12 Red Haw k Fire and Security Comvest Investment Partners NA
Apr-12 Tri-Northern Security Distribution, Inc. Audax Group NA
Apr-12 App-Techs Corp. Lylab Technology Solutions, Inc. NA
Mar-12 Westec Intelligent Surveillance, Inc. Interface Security Systems, LLC NA
Mar-12 Silver Shield Security, Inc. Universal Protection Service, Inc. NA
Mar-12 SecureNet, Inc. Securadyne Systems, LLC NA
Feb-12 SafeLink Security Inc. Central Security Group, Inc. NA
Jan-12 Dart Security; Access One Security; Lsa Security World Wide Security Group NA
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6. ABOUT RKJ PARTNERS, LLC
RKJ is an established advisor to leading lower middle-market growth companies. We provide our clients with
experienced-based solutions and unbiased advice. Our comprehensive array of strategic advisory and execution
capabilities allows us to meet the needs of our clients and provide an outstanding level of service in connection with a
variety of transaction processes, including:
❖ CAPITAL ADVISORY: RKJ possesses substantial expertise in assisting lower middle-market clients raise capital to
fund growth strategies. Whether the capital source is senior debt, mezzanine/subordinated debt, private equity,
or venture capital, RKJ has both extensive and relevant relationships within the capital community to enable the
deployment of optimal solutions for our clients.
❖ MERGERS & ACQUISITIONS: RKJ serves as a trusted advisor in executing merger and acquisition transactions for
lower middle-market clients. In addition to our significant investment banking transactional experience, RKJ’s
bankers have owned businesses and have served in interim CFO roles for clients. As a result of our experiences
as business owners and senior level managers, RKJ’s bankers are able to bring a unique perspective to the
mergers and acquisitions process. RKJ’s mergers and acquisitions services include:
 Buy-side and Sell-side Advisory
 Divestitures
 Leveraged & Management Buyouts
❖ STRATEGIC ADVISORY: RKJ provides financial advisory services to owners, management, shareholders and their
boards to assist in the evaluation strategic alternatives and options for extending and/or maximizing shareholder
value. RKJ’s advisory services include:
 Business Valuations
 Capital Structuring & Planning
 Negotiating Joint Ventures
 Strategic Business Development
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